Minimum wage more effective than NEP equity targets

As we all know, the two main prongs of the New Economic Policy are to wipe out poverty across the board and to restructure society so that no one ethnic group is stereotyped with a particular occupation – which in effect largely meant lifting the bumiputera community above the poverty line and into the ranks of the middle class.

Now, wouldn’t it be great if there was a policy measure that could kill both these “birds” with one stone? Well, there is – but it is the one measure that the government is loathe to introduce and has dismissed out of hand. It is a minimum wage for all workers.

A minimum wage would do wonders to reduce the poverty rate. Low-income workers would have to be paid wages that are above the poverty line. In fact, a minimum wage would be a far more effective tool in redistributing income in favour of the poor.

And who are these poor? Many of them are economically disadvantaged Malays, who are supposed to be the main beneficiaries of NEP affirmative action policies aimed at reducing inter-ethnic disparities. A minimum wage would not only help to alleviate overall poverty, it would also uplift genuinely poor Malays across the board instead of concentrating wealth in a smaller group of bumiputeras who are the prime beneficiaries of the 30 per cent equity target.

As the academic who spoke to me in my article for IPS below said, ”If the government is really serious about closing the inter-ethnic income gap, an effective way to do so would be to see that those at the bottom get a better income (through a minimum wage) — not screaming and shouting about shares in companies and ownership of commercial buildings, both of which are out of reach of the vast majority of the people.”

Based on the law of supply and demand, we would have expected wages to rise as we neared full employment and as labour grew scarce. But there was a deliberate move to subvert the so-called “free market” by bringing in migrant workers, who are paid a pittance and who are more vulnerable to exploitation. You see, the so-called “free market” is only allowed to operate when it suits the interests of the corporate class.

So why hasn’t the government introduced a minimum wage? Could it be that it is more interested in protecting the interests of investors and the corporate elite? But the academic also raised the following pertinent point: “Why is the government so concerned about the views of foreign investors on this matter, but not when it comes to, e.g., mandated shares in companies? Why is the government so solicitous over the privileges of the few, but not of the millions. Plus, what evidence is there that foreign investors come here because of wages – if low wages were a major concern, how come foreign investors are not rushing to Indonesia in droves?”

He also pointed out that the share of wages in value-added in the manufacturing sector has dropped from around 30 per cent to around 20 per cent. “This means that workers have not gotten their share of the increase in productivity as measured by value-added per worker. This is one reason for the increased in inequality in the country.”

But will a minimum wage affect small enterprises in the country?

To this, the academic responded that we need to ask:

(a) Does the government know how many small enterprises there are and what proportion of the total employed are in them?

(b) Do we really want such low productivity-low wage enterprises in the sense that do they really contribute to the country’s development?

(c) If it is deemed necessary to protect these small enterprises, couldn’t we design legislation to exempt specific categories on justifiable grounds (after all, there is the ICA, there are the turnover limits on the sales tax, etc.)?

But will a minimum wage jeopardise the country’s economy? “The evidence that is in is that it won’t, if combined with policies that encourage a shift to higher productivity sectors and with training programmes for workers in these very low-wage jobs,” said the academic.

Well, here is the article I wrote:

PENANG , Jul 17 (IPS) – Malaysia’s umbrella trade union body is pressing ahead with its campaign for a minimum wage despite the government’s stand that such a benchmark would put off foreign investors seeking a low-cost environment.

The Malaysian Trades Union Congress (MTUC) has stepped up its eight-year-long campaign, which would mainly benefit private sector workers, after the government awarded hefty pay rises to civil servants in May that lifted junior-ranking staff above the official poverty line. Full article: Forget investors, fix minimum wages – unions