ASIAN nations are introducing or raising the
minimum pay to tackle wealth gaps in a region that is leading global growth.
On the
eve of Labour Day 2012, Malaysia jumped on the bandwagon, announcing its first
national minimum wage. Private sector workers in Peninsular Malaysia will
receive a minimum monthly pay of RM900 while those in Sabah (including Labuan) and
Sarawak will get RM800.
The
minimum wage rates will take effect six months from the date the Minimum Wage
Order is gazetted.
The
effective date for small-time employers or micro enterprises is extended by
another six months, effectively giving them a 12-month grace period.
Some
3.2 million workers working in small and medium enterprises (SMEs), who earn an
average of less than RM700 a month, are expected to benefit from the policy.
They represent about 33% of the workforce who live below the poverty line of
RM763.
Some
detractors have charged that there is a political element to the announcement.
But whatever the motivation, the intention of any minimum wage policy, which is
to remove the problem of low pay, is noble.
Low pay
can result from a number of labour market failures. They include a lack of
skills, leading to very elastic demand for labour, so that a "higher"
wage could reduce labour demand substantially, and migrant workers who are
prepared to accept extremely low wages, thus driving down the wages for
indigenous employees.
Not
surprisingly, there is employer opposition to a minimum wage.
Some
Malaysian business groups have complained that a minimum wage would increase the
cost of doing business, thus hurting competitiveness. One industry association
claimed that a minimum wage set at RM800 would kill off 80% of small firms.
Another association warned that a blanket minimum wage would put four million
jobs at risk as some 200,000 companies could fold.
In
Thailand, industry associations are, not surprisingly, also making similar
claims. Thailand had in April increased its minimum wage to 300 baht a day in
Bangkok and six provinces. In the rest of the country, the minimum wage
increased by an average of 40%.
The
Thai Chamber of Commerce said the results of a survey showed that some 10% of
the two million SMEs in the country fear that they might have to close down. The
Federation of Thai Industries meanwhile said that labour-intensive industries
were likely to shift their manufacturing bases to neighbouring low-cost
countries like Cambodia, Laos and Myanmar.
Such
potential developments have understandably set alarm bells ringing.
SMEs
provide an important source of domestic employment creation and a mechanism for
local capacity-building. They also provide the crucial industrial linkages
needed to set off a chain reaction of broad-based industrial development.
But
must we be worried about a potential exodus of low-wage, low-tech,
labour-intensive Malaysian SMEs to a low-cost Asean member country? Is it
possible that such an exodus is actually a positive development?
There
are two reasons why it would be so.
The
economic restructuring required to transform Malaysia into a high-income nation
will require the reallocation of scarce resources. Any exodus of low-wage,
low-tech labour-intensive SMEs from Malaysia would in effect free up scarce
resources for use by sectors more capable of pushing outward the frontier of
production possibility, specifically, technology-driven, high-skill, capital-intensive
sectors that are sub-sets of the National Key Economic Areas (NKEAs). NKEAs are
the engines of growth the government hopes will take Malaysia to high-income
nation status.
The
freeing up of scarce resources for use by more productive industries or
sectors, whether or not that is a policy intention, will obviously have a
positive economic impact.
A
minimum wage, which will not be a turnoff for technology-driven, high-skill, capital-intensive
investments, thus does not contradict ongoing economic restructuring efforts.
Seen
from the Asean perspective, an exodus of non-NKEA-related SMEs to the less
developed Asean member countries is Minimum wage brings positive domestic,
regional impact also a good thing.
One of
Asean's greatest challenges is the integration of its new member countries —
Cambodia, Laos, Myanmar and Vietnam.
A key
constraint for Asean to work together to achieve an Asean community by 2015 is the
development gap that exists between the old and new member countries.
Any
Malaysian SME exodus to the new member countries would certainly contribute, to
a certain degree, towards Asean's efforts to narrow the development gap and
thereby assist in speeding up regional integration.
Are
these potential developments desirable from the perspective of a Malaysian SME
making such an exodus? Definitely.
The
idea of labour-intensive Malaysian SMEs relocating to less developed Asean
member countries, where the labour cost is still low and raw materials easily
available, has been floating around for years. A safer and easier alternative
was, and is, for Malaysian SMEs to establish joint ventures with local
partners.
Either
way, that strategic move would open up multiple business opportunities in the
host country for the Malaysian SME.
Quah
Boon Huat
Quah Boon Huat is a Research Fellow at the Malaysian
Institute of Economic Research (MIER). The opinions expressed here are personal
and should not be attributed to MIER.
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