On 29th June, SEDAR Institute was invited to take part in an informal discussion with IDEAS about minimum wage policy following an article ‘A fairer wage policy for the working poor’ written by Khaw Veon Szu and Lindsey Allwright.

1. On why is the minimum wage needed?

IDEAS: Why can’t the markets be left to determine a wage for workers on their own?

SEDAR: It was evident that low paid workers did not have enough bargaining power to negotiate a fair wage as why did low paid workers have low wages if they could do that.

2. On why is government involvement needed?

IDEAS: Skeptical of government involvement and preferred the suggestion of an outside private firm managing bargaining.

SEDAR: The role of an overseeing government body is to provide the legal framework and platform as well as to facilitate the collective bargaining process between the employers and the employees

3. On how would the trade unions or workers groups be chosen?

IDEAS: What is the legitimacy of the trade unions or workers groups be chosen by the proposed minimum wage council or committee?

SEDAR: Explained that there are ample established and credible trade unions around whose legitimacy are indisputable by all. However, stressed that our proposal was only a concept paper and that the finer details could be worked out for those sectors without any organized bodies to represent the low paid workers.

4. On what are the effects on unemployment?

IDEAS: Many studies show that a minimum wage increases unemployment and reduces training of low skilled workers.

SEDAR: There are equally many studies showing the opposite; that the minimum wage has negligible effects on unemployment and can increase training. Country comparisons were made but it was agreed by all that not too much should be inferred from their results as all countries are different, particularly when comparing developed with developing.

5. On the development of an uncovered sector?

IDEAS: The uncovered sector employing the labour that was made unemployed by the sectors covered by the minimum wage, thus paying an even lower wage as the supply of labour increased and thereby making poor workers poorer.

SEDAR: This was a valid point and demanded attention on the coverage and enforcement of a minimum wage. SEDAR pointed out that an overseeing national body would be there to determine what sectors were counted as low paid and to ensure they were covered by the policy. Also it depends on whether there actually were unemployment effects from the minimum wage policy.

6. On how does a minimum wage increase productivity?

IDEAS: How would a low skilled worker such as a postman be able to increase his productivity and human capital, as had been suggested by the article as a potential implication of a minimum wage?

SEDAR: A postman was just one type of low skilled worker with admittedly a limit to an increase in their productivity, yet the incentive to improve performance from better income received under minimum wage policy cannot be discounted. However, there were many other types of low skilled jobs with the potential for increases either through training and skills development or the investment in more machinery and technology. A minimum wage policy that was sectoral, which SEDAR had proposed, also allowed a lower minimum wage to be set for low skilled workers that had less potential to make productivity increases. SEDAR also pointed out that many SMEs claim that rising costs (partly due to costs of labour) coupled with competition do help in pushing for an increase in human capital and innovation, hence productivity.

7. On what is the effect on young workers?

IDEAS: A large percentage of low paid workers in Malaysia are aged between 15 to 24 years old and that providing them with a minimum wage would encourage them to leave school.

SEDAR: Many countries have a lower minimum wage rate for young workers or are even excluded from the policy.

8. On what is the effect on foreign workers?

IDEAS: A higher minimum wage would bring more foreign workers if they were included in the legislation or would increase demand for them if they were excluded.

SEDAR: A separate policy, complementary to the minimum wage policy, was needed to deal with the foreign labour here; such as imposing quotas on how much foreign labour companies could hire and methods of increasing the cost of hiring them. It was raised that foreign workers mainly do the work that Malaysian’s don’t want to do such as the 3D’s and that that needed to be addressed.

All in all it was an intellectually challenging discussion generating fruitful and interesting ideas and expanding minds to encompass the other end of the spectrum’s views.

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