Announcement

Ministry of Human Resources will be organising Minimum Wage Laboratory Exercise with the collaboration of World Bank on 8 to 14 February 2011 at Putrajaya International Convention Centre (PICC).

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Y.B. Minister Prelude

Ladies and gentlemen,
Salam 1Malaysia,

In line with the "1Malaysia: People First, Performance Now" concept, the Government, through the Ministry of Human Resources, is conducting a feasibility study on implementation of a national minimum wage for private sector workers in Malaysia. The study is also in tandem with the government’s vision towards realising a new economic model founded on high-income economy and improving the living standards of low income households.

Undeniably, there are Malaysians who live below the poverty line income level (PLI) as many workers earn wages less than RM750 per month. Analysis of average wages offered by employers participating in the ministry’s Fast Track Programme from October-December 2009 is shown in the following table Fast Track: Average Wages and Allowances for Local Workers According to Manufacturing Sector Sub-Industry

It is noted that the average wages for five manufacturing sub-sectors i.e. Electric and Electronics, Furniture, Plastics, Gloves and Textiles was RM626.76 per month for basic wages and RM762.20 per month for gross wages including fixed allowances.

These lower income groups, especially in urban areas, are facing hard times to make their ends meet due to ever-increasing cost of living, particularly on the back of price hike in daily necessities. The minimum wage regulation should be at least able to lessen the severity of their hardships.

However, some quarters argue that the setting up of the national minimum wage would lead to negative consequences as it could distort market forces. In addition, the minimum wage could also cause job losses in lower occupation categories where demands still exist for vulnerable groups especially for those working in rural areas. This in turn could result in higher unemployment rate for the country.

We have provided several useful website links for your further references on the minimum wage implementation. Do click them.

We welcome your views, opinions, ideas, suggestions and comments to provide us with better insights in formulating policies and strategies pertaining to the minimum wage. Such feedbacks can be channelled via this blog or by e-mail at gaji_minimum@mohr.gov.my.

Your invaluable input is very much appreciated. Thank you.

Datuk Dr. S. Subramaniam
Menteri Sumber Manusia







Monday, March 22, 2010

MEF Argument on Minimum Wage

Economic development is non homogenous
In discussing the applicability of minimum wage in Malaysia, the present economic structure of the country needs to be addressed. It has to be appreciated that whilst there are large pockets of developed areas, which is growing at a reasonable pace, there exists a large rural sector. In these rural areas, there exist very small enterprises such as provision shops, coffee shops, motorcar service shops and petrol kiosks. In fact, about 99% of companies in Malaysia are small and medium enterprises (SMEs). In these places, the imposition of a national minimum wage would only result in many of these enterprises closing down causing serious difficulties to those living in the vicinity. Malaysia at this stage should assist in the development of these small industries and not dampen their efforts of survival by the imposition of a national minimum wage. Another area of concern is the effect on unemployment should these small enterprises be forced to close because of the labour cost involved in hiring workers.

Present system works
Presently, wages have been determined principally by the market forces and where workers are unionised, it is always the practice of the management and unions to negotiate wage settlement. These methods of wage determination make it possible to have differences in wages among different types of economic activities among firms of different sizes situated in different locations with differing costs for those doing or working for, the business. They are far more superior methods of determination of wage levels compared with arbitrary imposition of a minimum wage. The labour laws provide sufficient scope for workers to organise themselves and settle questions relating to wages through collective bargaining. The law provides that a Collective Agreement once concluded becomes a contract of an employment for all employees covered in the establishment. It supersedes all other contract. The Collective Agreement cannot be varied, annulled etc. without mutual consent.

In the Malaysian context industrial harmony is a jealously guarded goal. The present industrial relations system allows parties to resolve issues themselves. If this fails, conciliation services are provided. Where this is not successful the Industrial Court hears the matter and hands down an award that binds the parties and more importantly prohibits industrial action. The present system works well. A national minimum wage would introduce inflexibilities into the system and interfere with management‐workers relationships.

Those who advocate a national minimum wage do so on the mistaken belief that it will execute the objectives of ensuring that wage earners receive so‐called decent wages; to eliminate exploitation; to reduce poverty; and to ensure equal pay for equal work. We should not recognise that all these objectives could only be met when an economy prospers. Continuous economic development will inevitably improve the welfare of wage earners because the increase prosperity will make possible increase in wages. A minimum wage cannot ensure the needed economic expansion.

Minimum wage may lead to erosion of competitiveness
We operate within a competitive scenario and the cost of doing business is a vital factor. This affects not only the continued presence of foreign investment but also the capacity of the country to attract new investors. It has been proven that when labour costs exceeds a particular level which an employer recognises as reasonable, some employers are prepared to close down the place of employment and move to other countries where the labour cost is considered acceptable. There have been many instances of closures during the recent financial crises. Although certain sectors of the economy are beginning to show signs of recovery, growth is not broad‐based and performance across companies and sectors is very uneven.

MEF is of the view that in adopting the right policy relating to wages, it is imperative that the objectives should be to instil confidence among global investors in the economy; help companies regain their cost competitiveness; and preserve jobs for workers and minimise unemployment. A national minimum wage is certainly not a step in the right direction. What the government, employers and unions should go towards is the promotion and adaptation of a performance based wage system.

MEF supports the Government’s stand that Malaysia is not ready to implement a minimum wage policy, as the move will drive away existing foreign investors from the country and would act as a hindrance in attracting new investors to the country.

Statistical aspects of minimum wage determination
A system of minimum wages, whatever its form, cannot work unless it is based on regular, reliable and timely statistics on a variety of data items, including income, wages, prices and characteristics of wage earners (sex, occupation, skill levels etc.). It requires a supporting system of labour statistics based on a programme of regular establishment surveys, frequent household labour force surveys, household income and expenditure surveys and ongoing compilation of statistics from administrative systems. Fixing the minimum wage level is therefore not easy. The ILO Convention 131 and Recommendation 135 concerning minimum wage with special reference to developing countries state that the criteria should be: the needs of the workers and their families, the general level of wages in the country, the cost of living, social security benefits, the relative living standards of other social groups; and economic factors, including the requirements of economic development, levels of productivity and the desirability of attaining and maintaining a high level of employment.

It is difficult for Malaysia to indicate the numerical weightage that should be given to each of these factors if it is at all possible to fix the "correct" minimal wage.

Union’s arguments

Narrow the gap between the poor and rich and reduce poverty

There are countries around us that have legislated a national minimum wage, such as the Philippines and Thailand and there is no conclusive evidence to say that the workers there are much better off tha workers in Malaysia because of the minimum wage. On the contrary, earnings of workers in Malaysia since independence in all sectors of the economy have consistently increased and without the ad of a national minimum wage.

The concept of minimum wage is some times made synonymous with "minimum living wage" to enable workers to meet subsistence needs. When we talk of subsistence needs we are referring to the very poor, those "below the poverty line" stated in Government documents. The term "wage" implies the existence of a contract of employment between an employer and an employee. It should be noted, however, that those below the poverty line are generally not in wage employment, e.g. the very poor in rural areas.

Even if there is a minimum wage it cannot be in the service of the very poor because they are not wage earners. What, then, is the use of a minimum wage? The MTUC would argue would raise the level of the lowest wage rates. That must depend, surely, on the level determined as the minimum wage. In fact this is the crucial issue. Countries such as Indonesia and Thailand fix the level so low that it does not reflect the "minimum try me wage". A possible reason for this is to ensure high degree of compliance.

There is, however, a disadvantage in this so called high degree of compliance. There may be employers who are able to pay much, much more; but the existence of a minimum wage will only act as a disincentive for them to do so. This will be especially true in times of high unemployment as occurring now in Indonesia. The argument that a minimum wage will raise the level of the lowest wage rates ‐ sometimes put as protection of vulnerable groups of workers ‐ is misplaced and not proven.

In 1968, a Royal Commission report in the United Kingdom concluded, "statutory protection does not result in raising the pay of the lower paid workers in relation to other workers". Even if, contrary to this finding, a minimum wage is able to raise the wage level, in a situation of less than full employment, it will only lead to further unemployment.

Low wages in the plantation sector?

Under the MAPA/NUPW Rubber Tappers’ Wage Agreement a wage revision of between 9% and 13% was granted and the following components are paid to tappers for the performance of their duties:

a) Monthly component of RM95.00 for tapping at least 26 tasks a month
b) A daily component of RM13.50 per task
c) Incentive for latex in excess of 11 kg., the current rate is 73 sen per kg,
d) Incentive for scrap at 20 sen per kg. (wet),
e) Daily bonus based on the price of rubber, currently the rate if RM7.60 per day
f) A safety net of RM350 per month excluding price bonus and out turn incentive.

Rubber tapers could earn as low as RM800 per month and as high as RM1,500 per month. This flexi wage system is comparable to other systems in other countries. In addition amenities are provided by the employers in the form of free housing, water supply, electricity supply, medical treatment, crèche and a plot of land for cultivation. The value of these amenities is estimated between RM350 and RM450 per month. Therefore, the allegation propounded that they are poorly paid is without substance.

Conclusion

The proposal to implement a national minimum wage in Malaysia is counter productive. We have in place a system of wage payments that has seen to work well within the context of our economic development. The machinery whereby disputes on wages are dealt with has proceeded smoothly and industrial harmony has prevailed throughout the years. A more positive direction in wage negotiation should be directed towards linking wage to productivity. MEF has long advocated the promotion of a performance based wage system, which takes into account the performance of the company and the performance of the individual. Based on the arguments stated above, the case for a minimum wage system is without basis or justification.

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