Minimum Wage in Malaysia

Minimum wage is the lowest hourly, daily or monthly remuneration that employers may legally pay to workers. Based on this article, http://www.pmo.gov.my/?menu=newslist&news_id=9763&page=1731&news_cat=13, in Malaysia, the government has set the minimum wage at RM900 a month or RM4.33 per hour for Peninsular Malaysia and RM800 a month or RM3.85 per hour for Sabah and Sarawak. The Prime minister said in his speech that the minimum wage will take effect six months from the date the minimum wage order is gazetted. The minimum wage is set to help low income earners get a better lifestyle.

For low-paid workers, this announcement must be something that they can smile about because the minimum wage order will increase their income, meaning they can afford to buy goods that they can’t buy before this. If before this, they can’t buy chicken but after the minimum wage is practiced the low-paid workers can buy it. This will increase the demand for normal goods because law of change in demand stated the higher the income, the higher the demand for normal good such as healthy foods and daily items. Low-paid workers are expected to buy more healthy food such as higher quality oil and rice because before this most of them will buy the cheapest oil and rice which are unhealthy. If they are using the money for healthier lifestyle, then government purpose is achieved. However, if they use the money to enjoy at the clubs or to gamble, the government motive is not achieved and the crime rate is expected to increase. While demand for normal goods increase, the demand for inferior goods such as instant mee decreases. This will happen only if the low-paid workers use the money to buy healthier foods. If the low-paid workers use the money for clubbing or gamble purposes, then the demand for instant mee will remain the same. Both goods are elastic because when the price is change, the quantity demanded of goods and services are also change, even greater than the percentage of price change. 

Figure 1 shows the price elasticity of demand.

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The minimum wage can also lead to an unemployment especially young and less-skilled workers. If the minimum wage is set above the market equilibrium level, the quantity of labour supplied by workers exceeds the quantity demanded by employers. This will lead to labour surplus and unemployment because this is a burden for suppliers. However, this will has no effect to professionals because their wages originaly are much higher than RM900. This is only applied for low-paid workers such as construction workers. If no action is taken by government, then the minimum wage motive to help low-paid workers will not be achieved because it will cause more unemployment. 
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If we see from other perspective, the minimum wage setting can attract foreign workers to work in Malaysia. This will lead to fierce competition between local workers and foreign workers and I believe for construction industry, employers will hire foreign workers because they are more skillful and they can stand working in hot weather. The increasing in total foreign workers will increase the number of crimes in Malaysia.
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The minimum wage order surely will increase the cost of production of goods or services. This will lead the producer or supplier increases the price of goods and services. If this happens, then government motive of setting minimum wage to help low-paid workers is not achieved. For Kuala Lumpur or any other big cities, increasing in price may not really a big matter to most of people because they will still buy any goods or services they want but for people in small cities, the increasing in price is a burden to them. For example, chicken, if the price of chicken increases, people in Kuala Lumpur will still buy it and this will benefit the suppliers but in small cities, if the price of chicken increases people will not buy or buy less the chicken and this will harm the suppliers, their customers will reduce. However, if suppliers do not increase the price of the goods or services, the consumer’s purchasing power increases. When consumer’s purchasing power increases, people wants to buy more because they are able and willing to pay. If this situation happens in the market where demand is increasing but supply is remaining the same, suppliers will increase the price and this increasing in price can lead to inflation. 
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The setting of minimum wage can also reduce firm’s surplus and worker’s surplus. When the government sets the minimum wage, firms will decrease the demand of workers until one point some workers are willing to receive wage lower than minimum wage level set. This will occur in black market. In order to find out who are willing to work with them, the employers need to do some searching activities such as call this particular person or that particular person which will reduce the firm’s surplus. Same goes to workers, eventhough the minimum wage is set, to find out which supplier are willing to pay at the minimum wage level, they need to search which workers are willing to pay them at minimum wage. This may require them to travel from city to another city or even to another state. All the cost involve in searching activities will reduce both surplus. There is also deadweight loss which is the loss to the society. The workers are willing to work but their willingness is not valued by the firms. If this happens, government motive to help people is not achieved. 

Figure 2 shows the loss involved.
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However, the employers who already hire workers and the workers who are already get jobs are beneficial from this. 
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However, for some employers, the minimum wage setting can benefit the business by the increasing in productivity. Some workers especially low-paid workers are motivated when they get more money. But in Malayasia, local worker’s attitude such as lazy and come late to workplace are the causes why the productivity level in Malaysia is still low. When workers are late coming to workplace, many works cannot be done on time. For example, suppose 50 pizzas can be produced per day, but because of the late coming of several workers, less than 50 pizzas will be produced. Other than that, if the workers are lazy, they will not give their best performances and this will affect level of productivity of workers.
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In conclusion, the announcement of minimum wages by the prime minister has benefit and also drawbacks depends on how workers and employers react to it. It can give benefit such as an increasing in purchasing power and also drawback such as decreasing in consumer’s and supplier’s surplus.