Swiss minimum wage model and its comparison with Malaysia

KUALA LUMPUR:

WHAT’S GOING ON?

Voters in Geneva, Switzerland have recently approved a proposal to introduce a minimum wage of USD25 (RM103.45) per hour, almost USD4,000 (RM16,552 ) per month, believed to be the highest in the world, in response to addressing a growing poverty since the coronavirus outbreak.

WHAT DOES THIS MEAN?

The minimum wage increase, which goes into effect on 1st November 2020, will benefit some 30,000 low-paid workers, two-thirds of whom are women.

Every worker in the expensive Swiss city and its surrounding region will now receive a minimum wage rate of at least USD25 an hour, a change that had previously been twice rejected by the local electorate.

WHAT ABOUT MALAYSIA?

As for Malaysia, the official minimum wage was increased from RM1,000 to RM1,200 per month in 56 cities and municipal council areas, following the gazetting of the Minimum Wage 2020 as of February this year.

The minimum wage rate payable now is at RM5.77 per hour, compared to RM4.81 per hour previously. But for areas outside the listed areas, the gazette states that the minimum wage rates will remain at RM5.29 an hour or RM1,000 per month.

Although Malaysia tops the list of countries with a minimum wage policy in Southeast Asia, Senior Researcher Hawati Abdul Hamid from Khazanah Research Institute (KRI) says, “If we compare internationally, our minimum wage is actually at the expected level, given our income level.” (figures below)

WHY IT’S IMPORTANT?

Economists have long recognised that boosting purchasing power by putting money in people’s pockets for consumer spending has positive ripple effects on the entire economy.

In an effort to help shape the discourse on wages, Siti Aiysyah Tumin also from KRI in one of her co-authored research, has highlighted “the importance of paying workers decent wages or living wages, not just minimum wages, so that people can lead dignified lives, instead of merely covering basic living costs.”

According to Siti Aisysyah, Bank Negara Malaysia and Employees Provident Fund (EPF) have estimated the living wages for Klang Valley, and perhaps more estimates of these thresholds for other areas in the country could further help guide determine the minimum and the aspirational wages for different parts of Malaysia.

It is also equally important to ensure that the economic activities which employs workers are high value added and productive activities and have more equitable value distribution, to ensure that our progress does not leave anyone behind.

THE BIGGER PICTURE

Under the current circumstances of the global public health crisis, the country’s economy is still recovering from the Movement Control Order (MCO) that was imposed to curb the COVID-19 pandemic.

But if Malaysia were to adopt a similar measure as Geneva, will this help to reduce poverty and fuel economic growth?

According to Hawati, “If we look at our national poverty line income (PLI) in 2019, it is at RM2,208. Although this is a household income measure, while the minimum wage is an individual income measure, there is still some distance between current RM1,200 and the RM2,208, assuming a household has only one income-earner. So, in a way, higher minimum wage could help reduce poverty.”

However, Hawati adds, there are some risks that we must be aware of when setting higher minimum wages.

Some employers, particularly micro and small-enterprises, might not be able to afford this, so we need to make sure they are assisted to ensure they can pay good wages, instead of laying off their workers and push them into poverty.

But increasing the minimum wage is not an easy task as it involves discussions and negotiations between employers, employees and the government.

According to Dr Shankaran Nambiar of The Malaysian Institute of Economic Research (MIER), “I would be reluctant to advocate a higher minimum wage. SMEs have difficulty keeping their businesses afloat and the government has extended a minimum wage subsidy. To raise the minimum wage at this point might push more businesses off the cliff.”

The Head of Research for MIER further stressed, “The pandemic throws up the flaws in the economy - the lack of a social security system, the low minimum wages and the absence of social safety nets. If these mechanisms had been present, there would have been automatic stabilisers in place to ensure that domestic demand is not too badly depressed.”

The Congress of Unions of Employees in the Public and Civil Services (Cuepacs) President, Adnan Mat, decline to comment on Malaysia’s current standing on the minimum wage, stating that it will be unwise to comment as most of the sectors have yet to recover due to the ongoing COVID-19 health crisis.