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Asia-Pacific Governments Play Catch-Up on Minimum Wages

Liz Gooch
Thursday, 14 Apr 2011 | 7:33 PM ET

Eight hours a day, seven days a week, a 40-year-old woman in this sweltering capital sweeps the footpaths of the public housing development where she lives. In the afternoon, she returns to her room, where she and four of her children, ages 5 to 15, sleep on a double mattress on the floor.

Photodisc | Getty Images

There have been nights when the children have cried after she could not afford to buy food; her monthly salary of 450 ringgit, or $149, often runs out before the next payday. She has already given up one daughter for adoption because she could not support her, and she relies on a church group to provide her with some food staples and help with the children’s school fees.

The woman, who insisted she not be identified for fear of losing her job if her employer found out she had spoken to a reporter, is one of the vast network of working poor in Malaysia. But these days, there is at least the possibility that her life could improve, now that the country has begun talking about a minimum wage.

The government, which recently mandated a base pay for security guards, has pledged to submit broader legislation to Parliament by June. It plans to establish a National Wages Consultative Council to study various options, including a universal minimum wage for all workers in Malaysia.

If the plans bear fruit, Malaysia will join the growing list of Asia-Pacific governments that in the last decade have been playing catch-up with most of the world, either by introducing a minimum wage or by stipulating new forms of minimum wages for specific industries or regions. According to the International Labor Organization, those governments include Indonesia, Mongolia, Vietnam, China and Cambodia.

Hong Kong is among the most recent to join the list. In January, it approved legislation to introduce a minimum hourly wage of 28 Hong Kong dollars, or $3.59. The law is scheduled to go into effect May 1. According to John Ritchotte, a labor specialist at the International Labor Organization’s Asia-Pacific office in Bangkok, Singapore is now the only country in the region without any kind of legislated minimum wage.

There is, to be sure, considerable variation among these locales, in terms of both the amount designated and how many workers receive it. For instance, Mr. Ritchotte said, Vietnam sets minimum wages by region based on the cost of living; Cambodia has a minimum wage for workers only in the garment, textile and shoe industries; and in China, provinces and municipalities, rather than the central government, set the minimums.

In terms of purchasing power, the most recent International Labor Organization figures available showed that Vietnam’s minimum wage provided $85 a month, compared with $148 in Indonesia, $295 in Thailand and $379 in the Philippines.

The motives behind the legislation also vary. “Rapid industrialization, growing inequality and, in some countries, rising labor disputes have led governments to introduce minimum wages,” Mr. Ritchotte wrote in an e-mail. “In other countries, concerns about stagnant wages or the persistence of the working poor lead policy makers to introduce them.”

In Malaysia’s case, the plans reflect the country’s ambitions to move into the ranks of high-income nations by 2020, which would require the average annual income to increase to about 45,300 ringgit from about 24,500 currently.

It has a long way to go. A 2009 study of 1.3 million Malaysian workers by the Ministry of Human Resources showed that almost 34 percent earned less than 700 ringgit a month — below the official poverty line of 720 ringgit. In fact, the new monthly minimum wage for security guards is only 700 ringgit.

“The bottom 40 percent of households have experienced the slowest growth of average income, earning less than 1,500 ringgit per month in 2008,” S. Subramaniam, the Malaysian human resources minister, said in February at a workshop in Kuala Lumpur organized by the government. “Therefore, measures are needed to narrow this income disparity.”

According to Malaysian trade unions, wages in the country have been depressed partly because of the availability of cheap foreign labor from places like Indonesia, the Philippines and India, particularly in construction and manufacturing. It has long been the government’s goal to reduce the dependence on foreign workers, but there are still an estimated 1.5 million documented foreign workers and as many as one million illegal workers in Malaysia, which has a population of 28 million. Proponents of a minimum wage say it would persuade more native-born Malaysians to take jobs that now only foreigners want.

The Malaysian Trades Union Congress, which represents 600,000 workers, wants to see a minimum monthly wage of 900 ringgit apply to all workers, foreign and domestic, supplemented by a cost-of-living allowance that would vary by location.

The group estimates that about three million workers would benefit if the minimum wage were set at that level, said G. Rajasekaran, its former secretary general and the current general secretary of the Metal Industry Employees’ Union.

“A lot of people are still paid as little as 350 to 400 ringgit” a month, he said, adding that some low-income workers in Kuala Lumpur had to live in squatter housing because they could not afford apartments.

The Malaysian Employers Federation, however, opposes any form of minimum wage, arguing that imposing minimums would lead to higher production costs, making Malaysian products less competitive internationally.

“Of course, we are not against increasing wages per se,” said Shamsuddin Bardan, the group’s executive director. “We support the government’s policy of trying to become a high-income nation, but we say that a high income should be productivity- and performance-based, rather than a minimum wage.”

David Robalino, a lead economist and team leader for social protection and labor at the World Bank, said a minimum wage should not affect the ability of Malaysian employers to compete if it is set at the right level.

Mr. Robalino, who is based in Washington, was in Kuala Lumpur in February with a team of World Bank specialists who participated in a series of workshops like the one Mr. Subramaniam addressed, which were designed to help the government gain feedback from various sectors, including groups representing workers and employers.

“The variable they have to use to adjust to minimum wage is their profits, not the price of the goods, not the level of employment,” he said.

Other analysts agree that setting a minimum wage at the appropriate level will be crucial. Alvin Liew, an economist covering Southeast Asia for Standard Chartered Bank, said that if a minimum wage were set too high, industries operating in the domestic economy would pass their increased labor costs on to Malaysian consumers via higher prices, which would encourage inflation.

He acknowledged the greater cost of production might also affect the competitiveness of Malaysian exports.

Yet if a minimum wage were set too low, it would not serve its function as a “social protection mechanism,” said Mr. Liew, who is based in Singapore.

Indeed, while minimum wages throughout the region have pushed up some workers’ pay, unions and analysts say the mishmash of policies continues to leave many struggling to keep up with the cost of living, especially as inflation continues rising.

For the time being, the woman sweeping footpaths in Kuala Lumpur seems resigned to the fact that she is one of those Malaysians at the extreme low end of the rich-poor divide.

“It’s unfair, but I have to survive,” she said, sitting on the mattress in her sparsely furnished room. If she received a salary increase, she said, she would spend it on her children.

The family was preparing to go to bed as soon as it got dark — the electricity was recently cut off because she could not pay the bill.

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