The issue of minimum wage for labor has been hotly debated since the advent of the industrial

revolution in England in the 1760s. Malaysia is one of the countries that do not have a
comprehensive law on minimum wage. Although there is an act called the Wages Council Act
1947, it only protects certain categories of workers such as catering and hotel, cinema workers
and shop assistants. Only recently that the coverage of this act is broadened to include workers
in other sections

Employers, using economic theories, argued that wages for labor should be determined by
market forces – that is, the wage level at the interaction point of the supply and demand curves
for labour. Any attempt at setting a minimum wage higher than that determined by the
(assumed) efficient market, they argued, would lead to a distortion in the economy, and in fact
would reduce employment opportunities for workers. It is true that in Malaysia, wage is
determined largely through market forces. In situations where there are unions, the salary will
be determined through Collective Agreement (CA). However, salary determination through CA
method is less common since unionized sectors only represent less than 10% of the total
workforce in Malaysia..

But by 1824, Australia (Victoria) and New Zealand recognized that the labor market was
imperfect and that employers would always have greater power in terms of setting wages. They
enacted legislations to establish arbitration boards to set basic wages for industries that were
deemed too lowly paid.

In Asia, countries such as China, Indonesia, Thailand and Singapore have established national
minimum wages or national wage councils, and as recently as in June this year, Hong Kong
passed a law to set the minimum wage for its workers (at HK$ 28 or RM11.17 per hour).

In Malaya, the British Administration introduced the Wages Council Act 1947 under which
minimum wages could be established for sectors where workers are deemed vulnerable. This
Act is still effective today. Under this Act, Wage Regulation Orders have been issued for
caterers and hotel workers in 1967, Penang stevedores and cargo handlers in 1967, shop
assistants in 1970, and cinema workers in 1972. Since 1972, however, no new wage regulation
orders have been enacted.

Employers’ groups, led by the Malaysian Employers Federation (MEF), vehemently oppose any
such move. Recently, they successfully lobbied for a delay in the implementation of the long
overdue Wage Regulation Order for private security guards. The mechanism provided for in the
Wages Council Act for the establishment of minimum wage is long and tedious. Basically, it
requires the Ministry of Human Resources to identify the vulnerable sector. It then has to
establish a Commission of Inquiry (COI) to inquire into the sector’s working conditions. The
COI’s recommendations will then have to be accepted by the employers’ and employees’
representatives and the Cabinet before a Wage Regulation Order can be issued.

During my tenure as Minister of Human Resources, COIs were established for clinic assistants,
agricultural workers as well as bus drivers. I believe their findings are still being discussed.

MALFUNCTIONING OF THE LABOR MARKET

Employer organizations in Malaysia have persistently argued against the introduction of a

national or even sectoral minimum wage. They continue to assert that wages should be
determined by market forces, and where workers are represented by unions, wages should be
established by negotiations between unions and employers. The employers’ assertions, of
course, assume that the Malaysian labour market is efficient, with employers and employees in
all sectors having equal bargaining power. This is obviously not true.

First, witness the case of plantation workers in this country. Since 1946, plantation workers have
been represented by the National Union of Plantation Workers (NUPW). Started by the
legendary unionist P.P. Narayanan, NUPW is well organised. However, it has to contend with
the might of plantation giants such as Sime Darby and IOI. While working conditions of
plantation workers have improved somewhat since independence, these improvements hardly
commensurate with the profits that the workers’ toils and sweats have generated to the
plantations.

It must not be forgotten that for over four decades after 1957, plantation workers were still
classified as casual daily-rated workers. It was only in year 2000, after much uproar, that the
employers finally agreed to a monthly minimum guaranteed wage of RM350 (which could be
raised by productivity bonuses to RM900) for their workers. Because plantation owners have
easy access to foreign labor, they have no incentive to mechanize. This ensures that the sector
will continue to be lowly paid.

Second, even the public sector, although represented by a strong Cuepacs, has its
imperfections in wage determinations. One such imperfection is revealed by the fact that in June
2008, the JPA issued a general directive re-emphasising that government staff are allowed to
take on second jobs during off-office hours. This shows that the government itself acknowledges
that some of its own workers receive salaries that do not enable their families to make ends
meet.

Further, early this year, Pos Laju’s postmen thanked the Prime Minister openly for his
intervention in enabling them to get their long-awaited 11% pay increment. This enabled them to
finally live above the poverty line. No intervention by the Prime Minister would have been
necessary had the market for wage determination in Pos Laju been efficient!

MINIMUM WAGE A TOOL FOR ECONOMIC PROGRESSION

The examples that I have quoted in the plantation and public sectors show that generally, the
market for wage settlement in Malaysia, like in other nations, is imperfect, with employers
holding the upper hand.Therefore, it is necessary for the government, as custodian of the
welfare of its entire people, to consider the introduction of a minimum wage system.Besides
protection of workers’ welfare, the evolution of the world economy since 1970 has shown that
minimum wage regulations have also become a set of tools that can enhance the progression of
an economy towards high income status with social harmony. The 1970s and 1980s were the
decades of the annual “spring offensive” of the Japanese railway workers and the yearly autumn
violent confrontations of the Korean Unions with the employers. Then, there was the massive
British railway men strike which led to the downfall of Edward Heath as prime minister in 1974.
Tony Blair, after he transformed the Labor Party to New Labor Party in 1995, essentially laid the
foundation for the British to accept the integration of its working class into the middle class. He
severed the Labor Party’s formal links with the unions, and moved his platform closer to the
middle ground, with his campaign pledge of a national minimum wage for the UK.Over his 10-
year reign as British PM, from 1997 to 2007, he transformed the whole British social system to
admit and accept the working class to the middle class. Although the British trade unions still
have not forgiven him, his policies resulted in a period of social harmony and sustained
economic expansion for Britain.

What happened to Britain had impacted government and corporate policies the world over.
Companies, especially the MNCs, began to regard their staff as vital resources to be nurtured
and upgraded. The personnel officers have evolved to become the human resource managers.

Unlike the past, when personnel officers take instructions from the top regarding the hiring and
firing of workers, human resource managers today play a strategic role in corporate
management. They ensured the workers are hired fairly, and retained through personalized
relationships between workers and management.

Businesses now realize that resources poured into having good human resource practices in
turn save them millions of dollars in hours lost to strikes and union negotiations. Instead of
bargaining through a third party such as a union, employees are now able to have access to
their employers through an “open door” policy. In light of dramatic improvements in labor
management practices (which include minimum wages) the world over since the 1990s, it is
imperative that Malaysia keep abreast and ahead of these practices so that we can continue to
attract the new waves of FDIs.

These new FDIs (such as the Apple supply-chain entrepreneurs) are now looking at not only
economic but also labor issues as part of their relocation criteria.

At governmental level, labor is one of the major issues we have to resolve in our negotiations for
free trade with the US and other nations.

What minimum wages can and cannot achieve

The minimum wage policy, like any other public policy, has its costs and benefits. Even with a
minimum wage system, employers will still have the edge over the bargaining power of workers.
What the system will achieve, however, is to set a floor wage upon which Malaysian workers are
assured of a decent subsistence living. Higher wages would drive companies to use labour
more efficiently and introduce mechanisms to achieve higher productivities, including multi-
tasking for workers. Hiring of part-timers would be more common. College students and retirees
working part-time in restaurants, so common in advanced societies, will also become a common
sight here. This will benefit the country both socially and economically, through the utilisation of
this currently untapped talent pool. But job opportunities for full-timers could be reduced
consequentially.

The government has also to ensure that the minimum wage system is effectively implemented.
Its implementation will be clearly hampered if we do not address the issue of the 2.5 million
foreign workers in the country.

International norms dictate that they should also be entitled to the minimum wages. Hence, we
will have to be more restrictive on the inflow of foreign workers.
But with the higher wage levels, more local workers will be enticed (from Singapore) to join
sectors they previously shunned. Employers will thus have more opportunities to replace foreign
workers with better-trained local workers.

Another issue that minimum wage does not resolve is graduate unemployment.The source of
this problem is due to a mismatch of talents and qualifications with market demands. Local
universities should quickly address this issue, otherwise with higher wages, there would be even
greater competition for graduates in the job market, thus aggrieving the graduate unemployment
issue.

Another worry is that employers will impute the higher wages into their costs of production and
attempt to pass these additional costs to consumers. Here, the UK experience can help. The
British government, after introducing minimum wages, also amended the laws to make the
British labour market more flexible, with greater ease of hiring and firing of workers, but
cushioned by a more extensive unemployment assistance scheme.

Malaysian employers should, therefore, lobby for greater flexibility of the labour market under
the minimum wage environment. Many other earlier developing countries (such as Korea and
Singapore) have achieved high income status by learning from the British experience of the
1990s, that is, transforming their labour markets to admit the working class into middle class.
Our educational and other social institutions are now ready for a similar transformation. The
implementation of a minimum wage system will accelerate this process.

When every Malaysian worker is embraced as a member of the middle class and part of the
Middle Malaysia, there will be no poor Malay, Chinese or Indian worker. We will become a high
income economy in which everyone will have a greater stake to preserve and enhance our
social harmony.

Given the historical timelines of the country, the implementation of a minimum wage system
now to accelerate our transformation process to ensure that every worker can become part of
the Middle Malaysia is due and appropriate, both economically and politically.

The Government is the largest employer in the country. Apart from Civil servants, the
Government also either directly through GLCs and indirectly through GLIC controls large
portions of private sector employers – From plantations, to Banks, to Trading Corporations,
SEDCs, privatized agencies, transport and heavy industries, airlines, oil & gas and hotels. So it
is in a position to convince MEF to implement the minimum wage as soon as possible.

To be a high-income nation under New Economic Model, the government has to be serious and
change our policy of being a low wage country, restructure employment to create decent and
productive jobs. A minimum wage policy will help to achieve this aim.
An immediate benefit to the country is that higher wages will lead to higher purchasing power
which will lead to increase domestic demand and economic growth and reduce our reliance on
exports which are at the mercy of other countries economic performance.
The government makers should be aware that the facts clearly show that the benefits of a
minimum wage outweigh any potential costs.

REFERENCES

Dr Fong Chan Onn, The Star Online, 25 September 2010

Case for a Minimum Wages in Malaysia, Andrew Lo, 15 AUG 2010

http://www.mackinac.org/article.aspx retrieve on 24 September 2010.

Minimum Wage and Fairness, Michael D. LaFaive, Nov. 1, 1997