Minimum Wage...The case of social ethics and econimics

"Sandra, 50, is a single mother who works six days a week from 8am to 6pm at a small bread factory on mainland Penang, in northern Malaysia. Her salary of just over 300 ringgit ($79) id whittled down to below that amount after statutory deductions. She lives in a congested squatter settlement in a dilapidated plank house, covered with corrugated aluminium roofing, which gets unbearably hot under the mid-day sun. With her retirement savings, she somehow managed to place a deposit for a 25,000-ringgit ($6,579) low-cost house, always scarce, and took a bank loan to finance the remainder. Monthly loan repayments alone come to 58 ringgit ($5.3). That does not leave much for food, transport, medical expenses and her son's education."

In Malaysia, the official poverty line is set at 460 ringgit ($121). Some people said to deny an increase in minimum wage is like to deny low-income workers a basic living wage and a right to basic needs including housing and medical treatment.

At first I was agree with the fact of all the employer in Malaysia wants cheap labor and do not want to give up a share of their profits. Everybody is underpaid , from janitors to factory workers to construction worker up to engineer. Then I did some more reading on the issue, thanks to wikipedia and some other website.

Then I realized, it is not simple to just increase the minimum wage. The concept of wage has some correlation with supply and demand. Both labor and demand curve can be demonstrated like the supply and demand with wage on the vertical axis and labor on horizontal axis.

In other words, by introducing minimum wage, 'theoretically' it would disrupt the equilibrium of supply and demand. A minimum wage might prevent companies from hiring workers below the minimum wage. This will result in excess labor and thus increasing unemployment.


Furthermore, Tun Dr. Mahathir made a statement, "if a worker earning 400 ringgit ($105) at present had his or her salary raised to 1,200 ringgit, those earning 1,200 would ask for a raise to 2,000, and others earning more will ask for even higher salaries. In other words, a high minimum wage will lead to a compound increase in wages and salaries which neither the government nor the private sector can afford,''. (sounds familiar).

Furthermore, increasing wage will increase the operating cost of a company. In Malaysia, most companies are international companies that choose Malaysia as the location for them to built their manufacturing . This is what people call offshore outsourcing . One of the reason these companies decided to do this is because the stable wage that remains low, due to the fact of stable labor supply. By increasing the wage, this might drives these companies to move their facilities to somewhere that offers cheaper wage.

My point of view is to evaluate the cost living and evaluate each level of labor. Certainly companies need to provide appropriate wage, but somehow labors need to increase productivity to earn their high wage. I agree with Tun Mahathir that the higher tier of the labor would want to have their wage increase. Thus, companies need to appreciate their worker skill, qualification and experience and set each level of labor with appropriate wage.

But I am pretty sure, we have brilliant economist would have idea on how this issue could be settled. The cost of living in Malaysia is definitely increasing so this serious issue needs to be tackled or else a lot of Malaysian people will suffer.