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Poor strategic planning on minimum wage implementation

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The government has implemented the minimum wage policy for political reasons without any strategic plan to address the flood of foreign workers into the country, observes Ronald Benjamin.


The implementation of a minimum wage order has brought about various reactions among employers and unions.

The whole issue has been dealt by those affected, based on the vested interests of these groups without a thorough understanding of the complexity involved. The issue involves not only the profit margins of the employers and the economic well-being of the workers but also the current situation of the manufacturing sector that is built on cheap labour and outdated technologies especially in the small and medium-size enterprises (SMEs), which employ the majority of the workforce.

A minimum wage policy is essential for the workers’ survival and well-being and should be supported by all responsible Malaysians. But the way the policy was implemented reflects a poor strategy that lacks a good understanding of how the economy should grow sustainably.

The government has implemented the minimum wage policy for political reasons without any strategic plan to address the flood of foreign workers into the country. There should be a moratorium in the intake of foreign workers, and financial aid should be given to the SMEs through tax incentives to bring down the cost of manufacturing. In this way, eventually employers would have the financial means to invest in higher technology to increase productivity. SMEs should be given time to implement value-added activities by upgrading their technology and gradually doing away with the remaining unskilled foreign workers from the country.

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Instead of working on such a strategic plan, the government has resorted to increasing the cost of manufacturing by implementing the minimum wage policy which includes foreign workers. The high cost of wages in a economy that is dependent on cheap labour-intensive industries with outdated technologies does not contribute to an increase in productivity per worker .For example, before the implementation of minimum wage, SMEs paid hefty overtime payments to their workers, both domestic and foreign, to meet delivery of orders. The combination of low wages and outdated technology basically encouraged workers to slow down production by working long hours that did not contribute to their well being in the long run.

With current manufacturing practices and without updated technology, there would be higher rates of overtime even with the implementation of a minimum wage. Instead of contributing to increased productivity, inflationary pressure on the economy would increase because industries would inevitably increase prices to mitigate the high cost of wages.

Therefore, in implementing the minimum wage policy, the government should also give tax incentives to SMEs so that they can innovate in bringing down the cost of manufacturing and increase productivity. The education system and training institutes also need to be revamped so that the Malaysian workforce can improve their work ethics and acquire the knowledge and skills to handle new technologies.

At the same time, employers should be held accountable for the development of their human resources. A win-win situation for all is the way forward.

Ronald Benjamin, an Aliran member, is a human resources practitioner based in Ipoh.

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