Employer groups are celebrating the postponement of the minimum wage increase for companies with fewer than five employees. They are wrong.
First, this will keep poor people poor. The costs of social protection to people on poverty-level incomes will rise. The “working poor”, reliant on welfare even though they are employed, will become structural.
The international evidence shows that the minimum wage is a social protection intervention that helps bring people out of poverty through work and improves economic conditions, especially at local levels.
So long as we have wages below poverty-level wages, people will need welfare support. So long as people cannot afford basic essentials, we will need subsidies costing billions. So long as employers keep wages down, everyone else will foot the bill. There is no free lunch.
Second, this postponement damages the rule of law. Clear, well-enforced laws that protect everyone are a prerequisite for properly functioning markets. Last-minute exemptions make laws elastic and people lose respect for them.
The postponement and the gloating of some employers damage the whole Malaysian business community, even those with good labour practices, in the eyes of the rest of the world.
Indonesia has already hit Malaysia with a labour ban. Multiple companies faced product bans or lost supply-chain contracts for labour abuses.
Foreign direct investors must show that they do not tolerate unfair labour practices among their suppliers. For international stakeholders, it looks like Malaysia is still a cheap-labour sweatshop where Malaysian employers boast about defeating basic international labour standards. This is not a good look.
Don’t prop up zombie companies
Third, it props up zombie companies. Wage costs would rise by only RM1,500 for a company with five employees on minimum wage. This is RM50 per day or RM10 per person per day. Any company that would suffer severe financial distress from such marginal changes is not viable and should not be propped up by the state.
This is an inefficient use of resources and such companies should be allowed to fail. The people and the capital should find higher-value activities which improve the overall quality of business and management in the system.
Postponing the minimum wage is a reward for bad management and puts the wrong incentives into the market.
For the market to function properly, people who work for companies that do not pay minimum wage should simply quit.
In a five-people firm, when one person quits, the workforce is cut by 20%. Employers will struggle to find replacements on poverty-level pay and the company could quickly fold.
This is the real danger in this “victory” for employers. Many become dependent on poor labour laws, low wages and the chance that changes will not be enforced. They develop bad practices which damage the long-term viability of their businesses. Even given many months to change, they do nothing.
Eventually, they will fail when either they are forced to comply with minimum wages or their workers will simply leave for companies that have already raised their salaries.
Leniency is a false economy
This lenient attitude in enforcement is a false economy that will make things worse in the long-term.
Fortunately, most small companies will ignore the postponement. Being small, close-knit organisations or social enterprises will benefit if they raise their salaries and attract new employees eager to escape bad employers.
More will be lost than gained for companies that resist the inevitable rise in minimum wages. There will be a reckoning when the market and regulations catch up. They will lose face, employees and their whole business if they insist on poverty-level salaries
So this may prove a pyrrhic victory for bad employers and their bad management practices.
The views expressed are those of the writer and do not necessarily reflect those of FMT.