Minimum Wage

1.0 Introduction

According International Labour Organization, Minimum wage defines as the lowest basic wage guaranteed by the law as an attempt to put a floor under the wages of a particular subgroup of working population. The progress of minimum wages policy was started after the National Wages Consultative Council Act gazette on 15 September 2011. This provision replaced the Salary Determination Council Act 1974 which is seen not effective to protect the workers welfare in general. The provision aimed to determine and standardize the wage structure for the private sectors worker in the country. This will help to reduce the dependency to the foreign worker and increase productivity per person. The implementation of Minimum wages policy has being debated since it is announced by our Prime Minister Datuk Seri Najib Tun Abdul Razak on 30 April 2012. He said that this policy as tools to bring our nation escapes from the middle- income trap phenomena and become the higher income nation. To achieve this mission our country needs to transform the country in high and competitive country and leading in technology, training, skills and innovation. However, there is questions pounder in the mind of the people, does minimum wages policy will benefit the people? Are the employers willing to pay the rate accordingly? What are the methods to determine the minimum wages for each state?

According to Peter R. Hartley, minimum wage is one of the example price controls. This is because price control will limit the volume of transaction, and distort the quality of goods or services exchange in the market place. It is same as to the minimum wage, whereas the cost to reduce employment increase while the benefits to stay in job is also increase. The concepts are quietly related with the market distortion theory. Market distortion exist when there are interventions in market by governing body. The market distortion wills creates market failure that will weaken the economy.

2.0 Poverty in Sabah and Minimum Wage.

The inefficiencies in the labor market and low skilled employees resulted the slow growth of wages relative to the labor productivity which the wage rate increases 2.6% annually compared to 6.7% increases of the productivity rate. This situation shows that the discrimination towards the worker might increases since the sluggish increase in the wages rate for the employee. According to the Malaysian Institute Economic Research, 30.6% of the total wage earner living on the basic wages lesser than RM 700 per month which is below the poverty line. Sabah is the most pities since the Poverty Line Index for Sabah even higher than the other state in Malaysia.
The Cabotage policy has deteriorated the economic condition in Sabah since the people in Sabah need to pay higher price rather than people in peninsular. This is lead to high cost of living to Sabahan. They have to paid high price in goods which is most of them burdened by this. This is because the supply of good shipped from the peninsular. Sabah is too dependent to the peninsular to supply the goods and services to them and this lead to increase in price. However, the new Policy introduce by the government which is to stagnant the base wages into RM 800 monthly effects the labor market in Sabah directly. Labor market consists of the employee as controller of the supply and the employer as the demand. Since the wage already peg into Rm 800 monthly, there will be more worker interested to join the market. However, the employer might not interested to demanded more worker. Before the implementation minimum wages, the wages are determined by the employer to decide the rate suitable gives to their worker. And in general, most of the workers in Sabah are low cost labor and paid lesser than Rm 500 monthly. This is because, most of the worker in organization in Sabah is relatives and this lead to low rate of wage given.

Besides, the SMEs in Sabah were very limited. Therefore, to encourage more firms to join the economy the minimum wage is sets low than in peninsular. When there more industries in Sabah and Sarawak, the economy will generate and will offers more job to the local people. The job creates will reduce the unemployment rate stimulate the economy. Thus, it will improves standard of living and reduce the poverty.

3.0 Method in determining the minimum wage.

Generally, there are three mechanism used in determining the wages in private sector. It is comprises the wages council Acts 1947(revised 1977), the collective bargaining and market forces. But the Wages Council Acts and the Collective agreement covers the definition of minimum wages. But, the definition not entirely covers the whole workers and failed to provide a decent standard of living. Therefore, the wages in Malaysia were regulated by the Market Forces. It is influence by several factor such as the price control, subsidies and the influx of the unskilled foreign labor which significantly lowered the real wage growth in the country. Therefore, a more comprehensive minimum wage is required to reduce the burden of low paid worker.

The establishment of National Wages Consultative council acts is needed because it will coordinate the implementation of minimum wages policy. In setting the minimum wages, there are several criteria focuses which is the median wage, productivity rate, competitiveness, change in PLI and employment. The Poverty Line Index is determining the basic need of the worker and his family. Whereas the more members of the family the more higher the wages needed. Median wage is rate for employers able to pay. Which it will effects the company profit, the more higher the paid to employee the lower profit collected by the company. Besides that, the National wages Council needed to realign the productivity growth with increase in wage. Last but not least, the Real Unemployment Rate needed to ensure the changes in wages rate do not hamper the ability to create and retain employment. Besides that, the NWC has come out with different rate of minimum wages in a different region. Which Sabah and Sarawak set RM 800 and the Penisular Rm 900 . The rate in Sabah and Sarawak is lower than peninsular because the average salary among SMEs in Sabah is extremely low. Thus, by setting the minimum wages the employer in Sabah and Sarawak forced to increase the wages rate.

4.0 Conclusion
There are several setbacks arise because of minimum wage policy. The first problems are unemployment. The unemployment results from the market distortion in the economy. This is happen when there is intervention in the market by the governing body. These distortions reduce the flexibility of the market and shift the equilibrium point of demnd and supply of the labor. The government intervention in regulating the minimum wages for the worker affects the labor market. Samsuddin . B (2012) argued that if the minimum wages too high, it is more costly for employer to hire workers in spite to give overtime allowance to their employee.

The second problems are uneven wage distribution. This thing occurs because of the unemployment. The employer will prefer to have part- time workers as the cost to employed full-time workers is higher. By hiring the part time worker, they will have power to determine the wages and sometime they could manipulating the employee by asking them from 4 until 7 hour day. Meaning that the worker will have same task as the full time worker but they are paid more lowly.

Minimum wage also results in market failure. The labor market, the supply curves measure the marginal social benefit from labor. An unregulated market allocates the economy’s scare labor resources to the jobs which they are valued most highly. However, minimum wage agitated the market mechanism and results in an increase in jobs search and unemployment. Moreover, the amount of worker’s and firm’s surpluses will decrease and the potential loss from job search will increase and results the market inefficient. In spite of that, the minimum wage policy helps to improving the social welfare of low-paid worker. This is because, it setting a par value for wages reduce the labor market distortion and maximize their efficiency of the labor usage in the economy. By giving the minimum wage to the low paid worker, their basic need will be fulfill and t the same time this will raise the living standard. This is because when their wages is increase, their consumption is also increase and it tends to have higher marginal propensity to consume. The main objectives to the implementation of minimum wages are to transforming Malaysia into high income and high productivity economy. This policy provides firms and workers to undertake productivity and enhancing measure. The firm will be investing to improve the production of the company rather than rely on the low class foreign workers. This will help reduce the risk of dependency to the low class workers. On the other hand it will gives greater availability to local employee to have better skills to be able to compete with another foreign worker In conclusion, I believe that the minimum wage policy tend to have an important role in addressing the inefficiencies in the labor market and improves the social welfare of the low paid workers. The implementation of minimum will increase economic growth in the long run. Therefore, the firms and individuals need to bear to the consequences for the growth to take place. The minimum wage is believes affective in reducing the poverty level and increase the average income of the Malaysian. Thus, a proper implementation needs to consider in ensuring the effectiveness of the policy. 4.0 Reference

Elangkovan,K.( 2013).A New Solution To Increasing Rate Of Unemployment : Introduction Of Minimum Wage Laws In Malaysia. 3rd International Conference on Management, Economics and Social Sciences (ICMESS'2013) Retrieved at 20 May 2013 at

Khalid AH & Zakariah AR. Minimum Wage policy as Pro Growth Policy. Special Session of the Corporate Economic Briefing Park royal, KL 17 April 2012

Why there is a need for a minimum wage policy. Transformation Unplugged by Idris Jala. Retrieved May 20, 2013 from http://biz.thestar.com.my/news/story.asp?file=/2013/3/4/business/12781101&sec=busine
Minimum Wage: Implementation and Implications .ISIS FOCUS NO. 1/2012 13

Minimum Wages Policy. Retrieve from Ministry of Human Resources website.

Potential Impact of the Minimum Wage Policy on the Malaysian Economy, annual Report