The seductive appeal of a minimum wage

  • Business
  • Saturday, 03 May 2003

THERE has been uproar in recent days following the announcement that the rubber plantation workers union and the plantation owners association have signed an agreement providing for a minimum monthly wage of RM350. 

The main points of contention can be summarised as follows: 

(i) The RM350 is too low. It is not a decent living wage and is an insult to rubber tappers, who had contributed so much to the economy; 

(ii) The quantum of this minimum monthly wage only serves to perpetuate the exploitation of estate workers by the plantations; 

(iii) Plantation companies can pay higher wages because they are making a lot of money, as proven by the profits they reported for 2002; 

(iv) The government and plantations are keeping wages low by importing foreign workers; and, 

(v) Living conditions on the estates are atrocious; and the plantations and government must do something about the situation. 

On Thursday – Workers Day – the president of the Malaysian Trades Union Congress, Zainal Rampak, called on the government to legislate for a minimum monthly wage of RM900. 

The question of a minimum wage can sometimes be an emotional subject, particularly when it concerns estate workers, whose socio-economic status, indisputably, is close to the bottom of the ladder, and they are mainly from one ethnic group. 

I'll try to examine the issue as objectively as possible. 

First, the RM350 is the floor; meaning that's the minimum rubber tappers will get no matter how low the rubber price falls. It's very unlikely that conditions will deteriorate to such an extent that tappers will not earn much higher than the minimum wage; but should it happen, they can at least be assured of RM350 a month. 

It's true that plantation companies are doing very well these days, but only because of high palm oil prices (which appear to have peaked anyway). Currently, rubber prices are also doing well, but the return from rubber lags far behind that from oil palm. A look at the financial statistics in the annual report of any of the large plantation companies will confirm this. It's not good business practice for a company to use profits from one division to subsidise another division – at least not in the long term. 

Will wages of local workers improve if the government and plantation companies stop taking in foreign labour? 

The answer is: Yes in the short term; but No in the long run. 

And this answer applies to the question whether a minimum wage will work. 

The first lesson in economics is the law of supply and demand. 

Throughout history, various groups, be they governments, corporations, unions or rich and powerful individuals, have tried to distort the law of supply and demand to their advantage. 

In the short term they can succeed. For example a few large corporations can gang up to create a cartel or a monopoly and dictate prices; powerful unions in strategic sectors can dictate wages by threatening to withdraw labour or through their closed-shop policy; or rich and powerful speculators can corner a commodity or a stock and drive up prices. 

But it's being proven time and time again that in the long run, such practices will come under challenge (either from the government, which will legislate to prohibit such practices, or by new entrants to the market) and break down, sometimes with disastrous results.  

So what will happen if the government prohibits foreign labour on the plantations? 

For a time, wages will shoot up because of a scarcity of labour. But then high wages will attract new entrants to this particular labour market, bringing wages to a more realistic level.  

Secondly, if wages remain too high, the estates will be unable to make a decent return on their investments, or even incur losses. They will move out of rubber cultivation altogether. Remember the estates cannot dictate prices, as rubber is an internationally traded commodity. (See my comment “Woes of rubber tappers go beyond minimum wage” on April 24). 

Like rubber, labour is also fast becoming an internationally traded commodity with globalisation. If there are Indonesians, Filipinos, Burmese, Pakistanis and Bangladeshis working in Malaysia, we have Malaysians working in Singapore, Japan, Taiwan, the US and Britain, and Indians working in the Silicon Valley and the Middle East.  

American factory workers have seen their jobs going to China. Labour and capital have become very mobile, moving to locations that offer the best returns. 

These massive movements of capital and labour do create social, economic and even political dislocations, but it's the law of economics at work, and at the end of the day it's beneficial to the global economy. 

It's a fact that many estate workers live in squalor and the government and plantations must try their best to improve the livelihood of this group of people by introducing better socio-economic amenities.  

At the same time, estate workers can improve their income through greater productivity. Many teachers give private tuition or sell insurance and unit trusts. Many housewives are into direct selling. Some operate perm parlour outfits and do tailoring or baby sitting from their homes. 

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