First of all, in my opinion wages of RM760 is not enough with the ever increasing cost of living today. Even a basic meal today in cheap hawker centres would cost a minimum of RM4.00 for a small plate of chicken rice. That is why we Malaysians like to complain in our native language “Semua naik, gaji tak naik” which means everything else in increasing except for salary. With the rising pressure from the increasing cost of living, if the government plans to just sit around and just watch, the citizens and labour unions might go into protest and rioting to demand for higher salaries. When that happens, peace and political stability in the country will be in jeopardy which would not benefit anybody.
Besides that, with such a low salary of RM760, it would be understandable if the people would feel unmotivated to work or look for a job especially the younger generation. Therefore with the introduction of minimum wage at RM800-1000, it would be fair as many employers today provide unfair treatments towards employees who are paid with such low salaries as they are considered as cheap labour and easily replaceable. And from the perspective of employees, when they are paid with such low salaries for their hard work, they will not feel the need to improve and work harder as they already paid so low. With the minimum wage at RM800-1000, workers would want to work better to justify their pay and will be less likely to quit.
Sure, setting minimum wages may sound fair when it does what it is intended to do. But, in reality it is not really that simple. This is because in theory, a minimum wage set to the market would mean government interference to the actual equilibrium wage level. When a minimum wage level above the equilibrium wage is set, a price floor will occur. And because of this price floor many effects will occur. The explanation is simple as when the wage rate is at equilibrium level, the quantity supplied for labour will equal the quantity demanded for labour. So, in this scenario, there is no such thing as a shortage or a surplus of labour.
Put it in this way, when the wage rate is above the equilibrium wage, the quantity supplied for labour will exceed the quantity demanded. This is logical as, since the minimum wage is now set assuming at RM1000, many people will want to work as the pay is now attractive. But, how many employers can actually afford to pay a large number of workers at a salary of RM1000? That is why a surplus of labour will exist, which in this case would mean unemployment. Of course we mention that cost of living is increasing but this also applies to business firms where their cost of production is also increasing. In order to cut cost or minimize losses they will have to retrench excess workers as the minimum wage cap will actually increase their cost of production, hence the increased number of unemployed labour. In addition to that, the harsh truth is that equilibrium wage rate actually mostly applies to unskilled workers and also fresh graduates. Would it be justified for employers to pay such a high salary to employees who have qualifications of only completing SPM and have close to zero working experience? The obvious answer will be no. In fact, this actually only lowers the chance of unskilled workers or in this case SPM leavers to secure a job as now no employers would want handle such a cost of paying RM1000 to them. And also, if such unskilled labour were to receive such a high pay, what about the people with high qualifications and professionals? These highly qualified professionals would feel that they too deserve a higher pay if unskilled workers were to receive an increase in their salary. And this again in turn will pressure firms to pay their professionals a higher salary in order to keep them at the firm as through management concepts, we learnt that professionals are valuable assets and human capital to the firm increasing their cost of production again. In the end, who pays the price? The lower qualified and unskilled workers have to be retrenched in order to cut down on cost of production which again further increases unemployed labour. Also on a side note, if employers do not want to sacrifice their employees, they will pass the cost onto customers. Meaning that prices of goods and services will increase, creating more burden on the people.
One of the best examples on effects of minimum wages on countries would be the United States. In the United States, because of the minimum wage set for unskilled workers, many students end up quitting school and do not want to further their studies anymore than high school because they find the minimum wage already sufficient to support their living and there is no point in actually continuing their studies to improve their skills and knowledge to become skilled workers.
As my conclusion, I would like to add that the intentions in implementing a minimum wage rate are good. But, it is easier said and done. There are the positive effects and the negative effects in doing so. Our leaders may have already taken everything into consideration and calculated all the risks or it could be just gimmick to get people to vote for them during the next general election. Only time will tell.
By Eugene Tan Jia Sheng
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