The business case for minimum wages

Minimum wage3

Minimum wage is often described as minimum living wage or what employees need to earn to cover their basic expenses in a community. Yet, you often see conservative economists and some business leaders, often with extreme right views, arguing against a minimum wage. Their thoughts against minimum wages are based on the notion that minimum wages will increase unemployment as businesses that cannot afford the increased wages will look for cheaper alternatives. Therefore, they claim that lower skilled workers who occupy low wage jobs will become unemployed as these types of jobs will evaporate. The attempt to help those at the bottom of the pyramid, they argue, will become a lost cause.

Conservatives argue for a free market approach and for wages to be determined by market forces. In a way, they are against any form of government intervention. They contend that imposing minimum wages will result in higher unemployment, increased cost of living and ultimately, a less competitive nation. Concerns that robots or automation will replace low wage jobs are commonly raised to support their view that a low wage policy should not be introduced. They couch their arguments on the point that lower level jobs must be saved to ensure that such jobs remain available to those who can only survive on them.

Although I am generally wary about treading in divisive and contentious issues, I am forced to write this little piece for minimum wage policy as I feel that the arguments put forward against minimum wages are irrational. A minimum wage policy should not be a contentious issue or something that is seen in purely economic terms; it is a matter of social responsibility. It reflects our social consciousness in moving forward harmoniously as a society. The consequences of not having an inclusive society and the pressing need to minimise huge wealth gaps outweigh pure economics. Organisations have got to move on beyond wages to finding ways to become more efficient.

Therefore, there is a need for the government to intervene in a ‘balanced way’ that puts in place adequate safeguards for both the employee and employer. Firstly, one cannot argue for trained and skilled workers to be in place first and productivity to be guaranteed before minimum wages can be restored through market forces. Secondly, I agree with the contention that left to a total free market approach, employees will be taken advantage of and wages may be depressed to very low amounts. The employees must get their fair share of the economic pie if we are to develop as an inclusive society. It is notable that Chief Executives who are against minimum wages and who claim that it will lead to non-competitiveness do not argue for a cap on top management salaries, club memberships or bigger car benefits. A minimum wage does not reflect a non-competitive society; it reflects a humane one.

Recently, a plantations CEO whom I have known to be a very good person said that the plantations sector should be spared from minimum wages as it may raise the costs of doing business. I was taken aback at his contention that estate labourers do not deserve a decent living as the business needed to make greater profits.

I believe that countries such as Malaysia and Thailand, that are working hard to escape the middle-income trap should get out of the ‘low skills jobs’ area. This can only happen with a minimum wage policy and a push for continuous skills training. No country can afford to neglect the bottom of the pyramid and bear the burden of social problems caused by a lack of decent wage, which is the right of every citizen. Neither can we afford to bring foreign workers on an indiscriminate basis. We need to move up the value chain. It is also important to highlight that the informal sector is not usually covered by the minimum wage policy. A minimum wage policy will kind of provide what is known as the ‘lighthouse effect’ helping guide the informal sector too. In fact, the economy can actually gain and organisations can benefit too from greater employee satisfaction with the hygiene factors resolved with minimum wages.

There has been much commentary in socio economic and political circles about inclusivity. Inclusivity has been seen as a multidimensional concept that goes beyond income distribution and poverty reduction. As expressed by Professor Amartya Sen and Jean Dreze, it is essentially a people-centered approach which puts humans first. Minimum wages offer individuals a social opportunity to move up the socio-economic ladder. No doubt, there is a need for a comprehensive skills policy to advance an inclusive society. Education and training of the workforce should have a greater role in enabling workers to achieve a larger share of economic growth. A growing nation like ours which is blessed with many resources should ensure that every member of the society is able to participate in all aspects of life: political, social, economic and civic. Social integration is not an isolated but an integrated concept. Only a ‘sweat shop’ economy would abhor minimum wages.

The vehement objections to the implementation of minimum wage, persistent demands for more foreign workers and the debates surrounding the issue of ‘minimum wage’ will create social tensions which is not something we need in the spirit of the new Malaysia everyone is aspiring to now.