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Why minimum wages and shorter working hours can be beneficial

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min-wageThe Barisan Nasional government has announced a minimum wage policy.

Mahathir Mohamad, a former prime minister, confessed in The Malay Mail his aversion towards minimum wages and shorter work hours.

He argues:

1. Malaysians have “far too many holidays”, implying we work short hours

2. And that's why productivity is low, because “when we work a lesser number of days our productivity must decrease”

3. It is hard to increase productivity to match the minimum wage rise when we already have too many holidays

4. With minimum wages, other employees of different grades will also start to demand for pay rises

5. Thus without commensurate increases in productivity, production costs for businesses will balloon and eat up a larger chunk of a firm's revenue

6. That's apparently disturbing news for competitiveness, and cannot be good for development

7. The West has been overpaying their people; that's why they are in “great financial trouble”

8. We too “pay more for less work”, therefore we may face the same fate.

Mahathir speaks largely for business and industry.

For a topic of consequence, his biased opinion was published as if it were the final word.

No counter-commentary was published to provide balance.

I therefore offer a response.

Do Malaysians really have “excessive holidays”? 

Mahathir states that we “have holidays for the holy days of all religions, however small the followers”.

Malaysia has 16 public holidays. Buddhist Thailand has 17.

Looking East, we find that industrious South Korea has just two fewer holidays than we do. Workaholic Japan has 18 national holidays. Competitive Hong Kong enjoys 20 public holidays.

Turning westwards, Sweden observes 13 national holidays, with the day before many of these holidays taken as de facto holidays, either fully or in half (businesses close shop at noon).

Mahathir claims that such nations— those that “overpay workers” and have “too many holidays”— are destined for bankruptcy.

Not true.

The biggest debtor nation plagued by bankruptcies is paradoxically the United States, the land where business reigns supreme, and where workers are among the most productive and get among the least number of holidays of all the developed countries.

The West's “great financial troubles” have other causes, not high salaries, temporary unemployment support or minimum wages as Mahathir suggests.

Do Malaysians have short working hours? 

The working week in Sweden is 36-40 hours split over 5 days. In Denmark it is 37 hours a week.

France has had 35-hour working weeks as a legal limit, now stretchable to 38 hours. Germans work between 35 to 42 hours full-time a week.

In Malaysia, The Employment Act sets the work week as 48 hours, with 6 working days per week and a maximum of 8 working hours per day.

Many Malaysians in the private sector but also doctors in the public sector commonly work longer, till late at night. Malaysians also sacrifice precious non-working hours in traffic-snarled roads and catching infrequent trains to serve their employers.

Sick and overworked workers frequently request medical leaves.

Most Malaysian workers in the private sector are not entitled to as many paid annual leaves as Scandinavian or German workers who get between 4 to 6 weeks off a year.

There is little truth in the statement that Malaysians are spoiled by short working hours.

A smaller falsehood: Mahathir claims we “automatically replace any holiday which falls on Sunday or Saturday with another day of holiday”. That rule applies only for Sundays.

Does productivity decline if we work fewer days? 

Not necessarily. Many Europeans are about as productive as the Americans but work fewer days in a year.

The point is that it is often about getting a lot accomplished in the hours that we actually work (productivity defined), and orienting productive energy towards appropriate goals.

It's also about being enabled to get plenty done in a given set of hour, with the right tools and environment and with time off to replenish our bodies and minds to regain the capacity to work well again.

It is about being driven internally to work because we are happy doing what we do (a job we like, a job with avenues to excel, flexible hours or the choice to work part-time).

If Malaysians work long hours but don't get as much done as the Europeans or other Asians do, that cannot be blamed on having short working hours or minimum wages.

It would have more to do with attitude problems that must be changed. These include a sense of entitlement and a tendency amongst some towards laziness. This is partly politically induced.

There is also the institutional disincentive acting against the impulse to work hard in workplaces where the norm is for everyone to take it easy.

A lack of rest and socialising opportunities outside work could also be contributing to the inclination to slack off during work hours.

It may in cases be better to have fewer working hours and days and be stimulated to pack in solid work when we do actually work.

With minimum wages, must workers increase productivity? Will others also ask for pay rises? 

Minimum wages are not about lavishing workers with free pay rises and perks; that's the exclusive domain of board of directors.

Minimum wages are about accepting that we live in a humane society where workers should be able to fulfill the basic human needs for subsistence and reproduce their capacity to do productive work.

These basic human needs must be carefully defined and should inform the policy process of setting minimum wage levels.

Setting appropriate work hours is also important because money does not buy everything, and certainly not the best things in life like health, relationships, social bonds and moments communing with nature.

Those who reject minimum wages tend to overstate the importance of business for business's sake, believing that 'what's good for business is good for the country'. For them, nothing should stand the way of the compulsion to make high profits (but high wages on the other hand are considered bad).

They argue that this is as a vital freedom or even a necessity, regardless of the consequences on society.

They do not comprehend that private enterprise was originally envisioned as a means to achieving desirable public ends.

They forget that many of the poorest workers for whom a minimum wage would apply already work hard, and work more than for what they get paid (and would be glad to work and work harder still if they knew they would get paid enough to feed their families).

Minimum wages apply only to those at the bottom rung of the economic ladder.

Setting minimum wages does not mean that engineers, lawyers and other professionals will start to clamour for a raise.

These other grades of employees mostly earn enough to fulfill basic needs that are obtainable with money.

Will rising production costs make firms less competitive? 

A firm survives and thrives so long as it can continue to produce, sell and earn a profit. Firms do not close if production costs go up, unless net profits fall to zero or less. Firms can make plenty of profit and remain competitive with increased production costs if revenues are large enough and they are efficient.

The issue boils down to a trade-off between what the capitalist wants to retain for himself as profits and what shall go to the workers as wages.

Suppose a thoughtful business owner decides to take in a pure yearly profit of RM13 million instead of RM15 million, keeping the sales prices of his goods constant (i.e., no mark-up and inflation). He allocates the forgone RM2 million for minimum wage increases (a raise of RM 300 per month for each of his 500 workers).

It is hard to imagine how his business would go bust or become less competitive simply by doing the above.

In reality, workers are in an unequal position in bargaining power; employers and business owners are almost always in a dominant position in determining wages.

Unlike our hypothetical business owner above, the actual businessman tends not to easily or fairly share the returns of the business.

Poor and desperate workers are under greater pressure to accept whatever scrap of a wage a businessman throws at them. The businessman can afford to do so; for he is not equally desperate, and has more resources and options to fall back on.

Setting a minimum wage floor would help level the playing field.

Minimum wage rules however should not be taken as a substitute for wage bargaining.

Unions can and should be able to increase the wages of the lowest paid workers above the minimum wage.

Final comments 

An appropriate needs-based minimum wage that is periodically adjusted, apart from being a guide for fair remuneration, could serve to motivate workers.

Locals who previously did not take up a low-paying job might take it up given an adequate minimum wage, relieving worker shortages in certain industries.

It could mean we do not need to bring in as many foreign workers into the construction and plantation industries and reduce the associated social costs that fall on society and government.

But the government must enact policies that ensure that local workers are hired; a minimum wage does not guarantee that employers will hire them; businesses could continue to hire foreigners even under a minimum wage policy.

The government could impose a moratorium on the influx of foreign workers, or require that a certain percentage of workers in certain industries must consist of locals. The government could help provide training schemes for interested locals who might want to work in construction.

Like the minimum wage, legislating reasonable work-hour rules for employees in the private sector would contribute to a healthy work-life balance that could enhance productivity.

Productivity gains could be obtained by setting and enforcing appropriate work performance standards within the framework of minimum wages and shorter work hours.

Clearly, we do not need to engage in the race-to-the-bottom model of economic development.

Alternatives exist that are worth exploring.

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