Minimum wage : productivity and education

No minimum wage policy was implemented previously and in conjunction with the Labour day, Prime Minister Najib Razak announced the minimum wage for Peninsular Malaysia RM900 and for Sabah, Sarawak and Labuan(Federal Territory) with RM800.

The minimum wage policy was not implemented partly because of the compromising profit of the organization in the country. Most of the employers understand that once the minimum wage policy is implemented, they need to restructure the operation of the organization in which they need money to do so.

Theoretically, increase in productivity can bring reduction in manpower to do a particular work, and hence increase in the profit margin. This cannot be seen in short run but long term, yes. Productivity can be increased by bringing in the technology which can increase the work done and reduce manpower(low-skilled). Therefore, the profit can be increased in long run. With the profit generated annually, the organization can substantially transform themselves into a better and more productive one. However, most of the organization have large inertia to shift into a hi-tech production, which indirectly increase the productivity of the organization. Furthermore, the employers most of the time emphasize in the short term profit and seldom have a vision in the long term profit. Even though the money or subsidy is given by the government to increase the productivity, the organization refuses to use the money for this purpose.

Secondly, minimum wages policy is connected with the education level which the country possesses. Currently, the labour market is still quite healthy but in terms of wages, not too good. Employers tend to pay the employees, especially the local fresh graduates with low salary. Partly due to the lack of confidence in the integrity and competence of the fresh grads, and also the poor communication skills that the fresh graduates have. Some MNCs do not hire the fresh graduates easily due to the mentioned reasons. So, in the end, should we blame the poor education system of the country? And maybe this is why the employers object the minimum wages.

Some of them also afraid that with the implementation of minimum wages policy, the amount of workers to be hired will be reduced to compromise the profit of the organization. Hence, more employees will face retrenchment and unemployment rate will increase. Worse still and strongly connected to the economy, national GDP will contract (because no one has better spending power) and give raise to inflation. Macro-economically, currency will drop and the foreign investors will draw back from the country due to the high living cost but low currency rate.

For one good reason of the implementation of minimum wages policy, is to allow the employees to produce (with good attitude and motivated personality). It is a good incentive to let them produce and get more productivity for the organization. Indirectly will generate more profit and the profit gained can be used for better technology to run the organization and this cycle goes on and on. More and more money can be generated and more money to be distributed to the employees and they claim for increment. (Ideal case)