Friday, April 13, 2012

Minimum wage is not real solution

Malaysia has been focusing its economic activity by attracting foreign investments through low-cost labour advantage in Malaysia. While we had been targeting to become a developed nation ever since the year 1991, our strategies had been those of the developing nation.

Many have been comparing Malaysia’s GDP per capita growth compared to South Korea’s. In 1980, the GDP (PPP) per capita of Malaysia was $2349.955, while South Korea was $2302.288. However in 2011, we see that Malaysia had $15,578 GDP (PPP) per capita while South Korea had $31,753. Of course simply comparing the two countries most people will make a conclusion that Malaysia’s government had been very terrible in managing the economy of the country. While in reality it was South Korea who had an extraordinary growth. If we were to compare our growth with Brazil, the situation exactly opposite with South Korea is occurring, with Brazil having $3742.852 in 1980, but at $11,845 in 2011.

The question is what is the difference between Malaysia, South Korea and Brazil? What do we have to do to increase our GDP (PPP) per capita which reflects the average purchasing power of an individual in our country? One of the ‘solutions’ proposed by both the government and the opposition is the minimum wage legislation. It may be to everyone’s surprise for the fact that among these three nations, Brazil was the first to introduce minimum wage in 1938. While South Korea only introduced it not more than 15 years ago, in 1998. Where at that time, the GDP per capita of South Korea had long passed the GDP per capita for Brazil.

So? Where are we actually heading to? Is this really the ‘solution’ to eradicate poverty and having a more equal distribution of income? Malaysia had been focusing on the advantage of cheap labour cost for too long already. To the extent that we don’t have enough labour force for the cheap labour market which forced us to import more foreign labours, making our cheap labour market more prominent. As a result, the last time we achieved double digit growth in GDP (PPP) per capita was in 1991.

The tragedy of cheap labour market did not end there. There are just too many brain drains happening in Malaysia, where we had been placed as number 9 in the world, with 2 out of 10 university graduates finding jobs elsewhere. Of course there are many reasons for the brain drains to happen, but without a doubt one of the main reasons is due to the low wage in Malaysia compared to other countries and lack of job opportunities. Three of my friends that is currently doing animation related course in the United Kingdom have no intention of working in Malaysia at all. They said it is because Malaysia’s payment for this field is ridiculously low compared to other countries.

If we do not change our economic policy, than nothing will change in Malaysia even though we apply minimum wage legislation. Malaysia had been good enough in producing highly educated human capital; however it seems that we are not producing enough job opportunities for this human capital. Most of our labour markets are for the low-cost labour category. And we are complaining that our graduates are picky in choosing their jobs. Of course we want a job which will make use of what we learn in the university? What is the point of studying in the university, struggling doing assignments and examinations while we ended up doing something completely unrelated to our field?

Without the slightest doubt that the minimum wage will cause an increase in unemployment and inflation to occur in the short term as that was the result in all researches done in developing countries. Despite that, I hope this minimum wage legislation will push Malaysia to participate in more high income economic activity with increased efficiency. If not, the dream for Malaysia to become a developed nation will forever become a dream.



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