Minimum wage is counterproductive

By Medecci Lineil

I am writing to share my views about The Star’s article entitled “Minimum wage review vital” written by Andrew Lo, CEO of Sarawak Bank Employees Union and secretary general of Malaysian Trades Union Congress Sarawak division dated  Sept 25.

In the article he urged the government to raise the current minimum wage of RM900 per month or RM4.33 per hour for the peninsula and RM800 or RM3.85 per hour for Sabah and Sarawak to a new rate as soon as possible.

As always like many pro-minimum wage supporters, he pointed out that studies have shown that minimum wage and higher wages lead to higher economic growth and more business for companies. It will not just offset cost of living increases but also spur the drive to increase productivity.

There are countless studies on minimum wage being conducted around the world and I know many of them indicate that raising the minimum wage has little or perhaps no effect on such workers’ ability to find and retain jobs. There are also, of course, other studies that show the opposite effect and other studies show no effect.

Do these studies mean anything? The answer is not really. Why?

For every study that Andrew points out to support his claim I also can point to a study where the results are quite the opposite.

There are so many studies, each one more elaborate and technical than the one before. So why would certain studies get picked and become his choice?

Then there’s the fact of how the consensus of wage figures were finally achieved in National Wages Consultative Council (NWCC) although no such consensus yet exists among economists is truly out of this world. I salute each one of them!

More importantly, according to Austrian economists, no such quantitative studies can possibly measure accurately the highly dynamic changing economics that occur in many areas which employment relations are defined in reality, but strangely it can be measured by the member of NWCC!

I wonder how they fixed the minimum wage figures in the first place. If the minimum wage figures can be fixed of course they can offer figures of many jobs have been destroyed by it no?

Rather than arguing which study is best to follow, let’s understand the law of economics; it’s about supply and demand, just like the law of gravity.

He cannot defy it. Wages are prices. If we raise the price of unskilled workers, what does the law of economics tells us? There will be less demand of unskilled workers. This means minimum wage destroys jobs that they would otherwise retain. That’s it. It is not debatable.

Seriously do we need NWCC or scientific study to tell us if a government mandated price hike of 30 per cent on certain goods and services will cause fewer units of those goods and services to be purchased?

If he truly believes raising minimum wage will lead to higher economic growth, why not he and his committee friends at NWCC set maximum wages for all workers instead of minimum wages for low skilled workers?

Also it’s appropriate to ask if he is an employer, would he raise wages to maximum of all his workers to get more business?

My best guess is he won’t do it.

Why? Because he realise the costs incurred by an employer to employ low skilled workers will be increased and thus will only be able to employ fewer of them.

And yet he criticises employers who actually employ the workers for whom he expresses sympathy for and forces them to pay wages he thinks will work. How sad.

Even if later he denies the costs of employing such workers, the burden is still upon him and his friends at NWCC to explain, namely if the benefit is so much greater than cost, why phase in its implementation? Does he think that phasing in its implementation is akin to delaying the country’s progress toward higher economic growth?

Since the law of economics says wages are prices, the usual complaints we hear are prices too high right? People want cheap and low prices. What makes him think the minimum wage issue should be exempted from the law of economics?

He is in favour of wage control, so can I say he is also in favour of price control which is completely bad for economic growth?

Finally, I appreciate Andrew’s intention and hard work to help our workers. I oppose the minimum wage because it does not achieve its stated goals. It does the opposite of what it intends. Like him, I also want to help workers. The question that remains unanswered is how best we can achieve those goals.

First published in The Ant Daily on Oct. 2, 2015.

 

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