Defend the poor, oppose minimum wage
MAY 11 — The law dictates that every employer must pay an EPF contribution amounting to 12 percent of the monthly salary of the employee. Twelve percent is quite a hefty amount for start-up organisations, including for us at IDEAS.
I had a dealing with the EPF recently. The EPF officers were very helpful and I have nothing but praises for them. But when talking to them, I realised that there is a big possibility we actually cannot afford to employ the people we need at IDEAS.
I may have to terminate contracts, or, at the very least, negotiate a pay reduction. In fact, I know definitely that I cannot afford to hire new employees even though we desperately need additional hands in the office. The reason is simple — the compulsory EPF contributions make the cost of employing staff too high.
Let me give an example. Say that one employee costs me RM5000 per month. Add the compulsory EPF contribution, the cost to us to employ her is actually RM5600 per month. The additional RM600 per month is a lot of money. If I didn’t have to pay the EPF contribution, I could have used the money to employ an additional part-time clerk to help in the office.
But since I am forced by law to pay her EPF contribution, I cannot afford that additional clerk. If I already have the clerk in place, I may have to terminate her employment. What is worse about this scenario is that the part-time clerk, as a low-salaried and low-skilled worker, may be more dependent on the money I pay her to support her family than the ‘richer’ professional.
Due to the compulsory EPF contribution that I must make for a relatively better paid employee, a low-salaried employee had to suffer. But my hands are tied. I need the skills of the professional in order to get my organisation going so I have to pay the salary she demands.
It is ironic that the EPF law which was enacted with good intentions — to ensure Malaysians have sufficient pension funds — ends up destroying job opportunities for poorer and less-skilled individuals. I wonder how many employment opportunities have been destroyed by the EPF regulations?
The law of unintended consequences, as shown in the example above, punishes the poorest hardest. This is exactly why the government should not intervene in how much an employer pays an employee. In the truest sense, the fairest pay is the pay agreed by the two parties involved, with no outside intervention.
It is situations like this that makes me worried when I read about the Ministry of Human Resources’ intention to impose by law the increased wages of security guards. This is akin to the EPF scenario I described above. There will be unintended negative consequences, even though the original intention is noble and praiseworthy. I also think this step is against the spirit of the New Economic Model outlined in the National Economic Advisory Council’s March report.
In Chapter Six (page 114) of the NEAC report, in discussing the need to build a strong safety net against economic shocks, the NEAC says: “Some have suggested that a formal minimum wage might be helpful to cushion workers against such shocks and downturns. The NEAC strongly believes this would be a wrong approach and in fact could exacerbate the situation by reducing competitiveness and reducing employment opportunities.”
The NEAC is right. The government must act coherently if they want people to take the MEB proposal seriously. If the government itself, in this case through the Ministry of Human Resources, ignores the recommendations made by the NEAC, how do they expect the people to take the MEB seriously?
There may be questions about how minimum wage can reduce employment opportunities. Our experience at IDEAS above can provide a clue. As an employer I started thinking about who to remove when I discovered how much the EPF contributions could cost us.
But I also have a personal story to share. When I was still studying in England, I worked as a part-time hospital toilet cleaner. The British government imposed a minimum wage in 1999. As a direct result of that legislation, I lost my job. The company just simply could not afford the minimum wage set by the government.
So, I know from experience that minimum wage hurts low-skilled workers the most.
In 1997, the British think tank Institute of Economic Affairs published a special edition journal to explore the impacts of minimum wage. The studies argued that minimum wage may not produce adverse effects when the economy is growing. But during a recession minimum wage will make situations worse by making it hard to reduce unemployment. Companies will not be able to recruit staff at a lower rate or to pay less because the law prevents them from doing so. Economic recovery will therefore be slower.
Datuk Shaheen Mirza, President of Security Services Association of Malaysia, said that if the government goes ahead to impose a pay increase on the sector, up to 300 security firms will have to close shop. And 60,000 local security guards will probably lose their jobs. Even though the original intentions behind minimum wage is noble, low-paid workers will ultimately suffer. These are the unintended consequences of minimum wage.
I am fully aware that some security guards are paid a very low amount for their service. My uncle — Pak Andak — works as a security guard near Kuala Pilah. He cannot even afford a motorcycle. He gets on to his old bicycle every evening to go to work, so that he can feed his family. His wife passed away last month and he is now the sole provider for his children. I am very worried. Who is going to support his family if my Pak Andak lost his job because of the minimum wage?
I admit I am a bit emotional when discussing this topic. I cannot help it. I am worried about my Pak Andak and I also had a personal experience of being a victim of the minimum wage policy. I wonder how many minimum wage campaigners have actually done manual labour, let alone worked as toilet cleaners? Or are they actually so far detached from the people they are about to harm?
Minimum wage is bad, especially for low-paid workers. For the sake of the poor, Malaysians must oppose the minimum wage proposal.
* Wan Saiful Wan Jan is chief executive of Institute for Democracy and Economic Affairs (www.IDEAS.org.my)
* The views expressed here are the personal opinion of the columnist.