Today:
Subramaniam said while the Government did not agree on the implementation of a minimum wage for all workers, it recognised that it was necessary to offer decent salaries as the country was losing its skilled employees to its competitors.
”We are losing our skilled workers to Singapore and the Middle East. We may end up losing even more so we must come up with attractive salaries as a way of persuading them to stay on. [Council to look into salaries of electronics, textile sectors. Sim Leoi Leoi. October 7 2008]
Basically, it is an idea to use minimum wages as a tool to retain local talent.
I do not think that it is a good idea. Consider the following scenarios and questions.
If there is free flow of labor as the Minister suggests, then it is far better to let employers and employees to negotiate with each other and decide what levels of wages are the best for both. If the businesses really need the talent, then the employers will offer wages high enough to effectively match wages offered outside of the country. For brevity, let us call this kind of wages as parity wages.
If there is no or little need for the talent, then there will be no parity wages. And when there is no or little need for such talent, would imposition of minimum wages help keep talent local? How does the Minister plan to keep talent local if there is no need or little need for such talent in the first place?
As for businesses based locally but unable to offer parity wages and yet are able to find willing talent, would minimum wages, which increases the cost of factor of production for the business help increase hiring? How would imposition of minimum wages encourage job creation in the country? How would imposition of minimum wages ensure that the businesses do not close down or migrate to somewhere cheaper, and hence, worsen employment opportunites in the country?
15 replies on “[1801] Of minimum wages as a tool to retain local talent in a free flow of labor environment”
oyster_cove:
You do have a point – in fact, I agree with you. However, it is not that workers can enjoy ‘greater purchasing power’ (there are other economic consequences), but so that people can put away money safely i.e. that the value of their savings won’t be eroded. Hard work, honesty and thrift is desirable and shouldn’t be penalized.
anon,
Forget about minumum wages, Malaysia need to appreciate the Ringgit so that workers who earn low salary can have a higher purchasing power likewise Singapore had done to the Sing dollar.
Another question to ponder: what actually drives wages? What should be done so that there will be a sustained increase in (real) wages?
btw I don’t always like the free market, but it is the fairest and most just system there is – where individuals are given opportunity and meritocracy reigns.
re: Ahmad – some final points:
Let’s say if you had a firm, and you pay your employees RM300. If the minimum wage were set at RM500, (though the figure Subra touted a while ago was RM1500 LOL) what would you do?
1. Fire some employees
2. Drive the remaining employees to work harder so that they can give you RM500 worth of ‘work’
Those who are unemployed are now at a greater disadvantage, because unless they are able to provide at least RM500 worth of work – they would find it difficult to get a job.
You might argue that – well, employers are greedy men who only focus on profits. But in that case you are missing the point – it takes a lot to start up and run your own business. Big businesses (especially those endowed with special privileges by government) would cope well with the introduction of the minimum wage since they have enough $$$ to pay out extra wages. However, small businesses would find it difficult to cope and suffer the most.
Think again who actually ‘benefits’ from such legislation. As Hazlitt puts it – good economics is about examining the short term and long term consequences of any course of action; and also its effects not only on a small selected few, but on every subgroup of people.
The way some countries like to work round minimum wages and ‘rigid’ labour markets is to debase their currency – continuing with the example I raised earlier, the worker might get their RM500, but in terms of purchasing power it is the same as the RM300 he previously received. But that is not all – he is even in a worse situation than before, because the savings he put away has now depreciated in value as well.
Reagan: “The most terrible words in the English language is: I’m from the government and I am here to help.” – is the worker now better off?
It is in the interest of every employer to treat their workers well. Though there are plenty of bad employers around, that’s why there are (minimal) regulations – but wage-fixing is not one of them.
re: Ahmad – the links which I’ve posted earlier adequately deals with your misgivings.
A global recession is already locked in – imposing a minimum wage or any form of price controls would only further delay the economic recovery process. This was part of the reason why the American recession in the 1930s became the Great Depression.
And when that happens, people start blaming the market, capitalism, etc! When the problem was caused PRECISELY because capitalism was not allowed to function.
Ahmad,
I suggest that you read the discussion first. You’ll realize that everybody here understands the objective and I specifically disagree and question Subramaniam’s idea. It’s Subramaniam that doesn’t understand that objective of minimum wage, not me. I’m not the one that came up with the idea. On the contrary, I’m the show spotting hole in his suggestion.
About RM300 as minimum wages, have you thought of the victim of minimum wages? Standard models as well as many empiric studies have show minimum wages limit employment opportunities and only helps those that already employed. What about those being prevented from employment? Do you think people can live without income?
moo_T
Anon has replied to your comment and it hits the point. I would say the same thing only differently.
In plain word, minimum wages ideally protects very low income lowly killed workers from unfairly low salary. Take for example, the average monthly salary for cleaners is only about RM 300.00 – 400.00 for a 5 days a week work.
Do you think people could decently survive with 300.00 a month? Minimum wage is to protect this group of people, not to prevent loosing skilled workers.
Parity wage, as you have mentioned above, would be a better option to prevent loosing skilled workers. Subramaniam and you have failed to understand the objective of minimum wage.
Correction:
ASEAN’s formula for ’success’ was cheap labour, subdued populations, great tax breaks for foreign investors (at the expense of the local’s freedom – economic and political), undervalued currencies (to make their goods cheaper), and political ’stability’ (usurping democracy and curbing political freedom).
Now India and China have joined the game – they not only have cheap labour, but tremendous domestic freedom (so long as you don’t start any trouble). They too have a lot of creative people. So India and China are now eclisping their ASEAN members.
Everyone likes cheap labour – in the same way, you as a consumer, if having to choose between two products of equal quality, surely you would go for the cheaper option as well.
So long as the industry is sufficiently large, you would get competitive wages. Remember there are no ‘fair’ or ‘decent’ wages – the only fair wage is what the market decides to pay.
So far none of you have refuted the arguments Hafiz and I have raised. And you guys have not properly thought out the full logical consequences of your proposed course of action.
If you want higher wages, then you have to move up the value-added chain – Singapore knows that, but Malaysia isn’t making any strides towards it. That would mean people have to work hard, get a good education and equip themselves. If your economic growth is mainly spurred by ‘cheap labour’, in the long run it’ll taper out.
ASEAN’s formula for ‘success’ was cheap labour, subdued populations, great tax breaks for foreign investors (at the expense of the local’s freedom – economic and political), undervalued currencies (to make their goods cheaper), and political ‘stability’ (usurping democracy and curbing political freedom). They too have a lot of creative people. So India and China are now eclisping their ASEAN members.
Where are the ‘creatives’ in ASEAN? Much of them have immigrated to the West – where things are better (liberty, freedom, standard of living).
Minimum wages are meaningless. The ‘absolute value’ of the minimum wage doesn’t matter – what matters is REAL WAGES (i.e. factoring in inflation). If the minimum wage is ‘too high’, the country would likely debase their own currency so that the minimum wage becomes ‘lower’. But this actually harms the poor even more – and it’s my belief that this is the real reason behind the widening income gap i.e. because countries have been inflating their currencies (for one reason or another).
Dear anon,
There is always two edge for many things. Employer loves cheap labour, are you one of those employer. ;)
IMHO, bad employer feed on cheap labor, good employer get money from better production quality. In 19th century, Friedrich Krupp has enable the early day worker welfare. And this is part of the cost to sustain the worker, and went ahead for any demand that a union will ask for, to prevent worker from forming a union. i.e. if worker not happy, they will form union and demand something, and worker will spend time fighting for their right than production.
A country that think of transform OUT from cheap and labour intensive industry, must have policy to encourage higher wages worker and gradually reduce the workforce of blue colar. And this include retraining of blue colar worker.
Talk about cheap labour, there is always a CHEAPER counter part raise up. Just look at Malaysia textile industry, it is AFU now, because there is cheaper labor in China.
As a person who sometimes oversee the hiring and firing process of skilled and unskilled workers non-union workers, I Personally support minimum wage on the basis that it encourage competitiveness to obtain a decent paying jobs.
In the long term of employment the wealth distribution would also be much more better.
For those who had worked in singapore would agree. As rosy as their Per-capita income looks on paper (much like KLs) the real situation there for unskilled labor is appalling. Making between SG$1200-$1500 a month and spending 50-60% on housing makes for no living at all, unless you share one bedroom condo with 5 other filipino maids. Hah.
Back to the issue, Minimum wage is not protectionism, rather it is a tool to balance the power between employers and employees. Unionized workers would be a much much bigger headache.
The Singapore which Sub. admires is DEAD-SET against minimum wage laws. Imposing them will only make the upcoming economic turmoil a much tougher ride.
> IMHO, minimum wages in labor sector together with
> incentive, is a carrot and stick for government
> to encourage use of machinery, technology and
> improve process.
I take it you mean that it is good ALL WORKERS SHOULD BE FIRED and be replaced by machines? Hahaha.
Joking aside, like all price-fixing attempts minimum wage laws is a TERRIBLE IDEA.
Unless, of course, if you benefit from it ;)
FACT: MINIMUM WAGE LAWS ONLY BENEFITS A SELECT FEW (THE EMPLOYED) AT THE EXPENSE OF THE REST (THE UNEMPLOYED). THEY INCREASE UNEMPLOYMENT AND HARMS THOSE WHO WERE SUPPOSED TO ‘BENEFIT’ FROM SUCH LEGISLATION.
Some terrific resources:
Minimum Wage Laws
http://jim.com/econ/chap19p1.html
Do Unions Really Increase Wages?
http://jim.com/econ/chap20p1.html
Milton Friedman on the Minimum Wage
http://au.youtube.com/watch?v=JfdRpyfEmBE
I don’t see how this could help ‘retain’ talent – since such legislation (directly) affects those who toiled at the lowest wages (i.e. low-skilled workers). Or are they thinking of a full fledged, wage-fixing scheme?
Subramaniam needs to drop his Marx and read some Hazlitt and Hayek.
Agak-agak kan, kita akan jadi macam Iceland?
IMHO, minimum wages in labor sector together with incentive, is a carrot and stick for government to encourage use of machinery, technology and improve process.
The millions of hard labor from poorer country that present in Malaysia show that government are in dysfunctional state. Despite low wages, there is little research on the social burden, e.g. rise of TB disease case, poor hygiene, human rights issues,etc.