We Don’t Need Minimum Wage, What We Need Is Liveable Wage

According to the International Labor Organization, the purpose of minimum wages is to protect workers against unduly low pay. They help ensure a just and equitable share of the fruits of progress to all, and a minimum living wage to all who are employed and in need of such protection.

Which in simpler terms, means that the minimum wage is created to protect workers from being exploited by being paid low wages.

So how is the minimum wage not working? To understand how the minimum wage is not working, we need to take a look back at the second sentence of minimum wage’s definition; “a minimum living wage to all who are employed and in need of such protection,”.

Which brings us to the problem of minimum wage in Malaysia – the minimum wage is not a living wage.

What is the minimum wage?

The minimum wage as per the name, is the lowest amount of wage that is permitted by the law. In Malaysia, right now it is set at RM1500 per month.

But before that, how much was the minimum wage? Let’s have a look at the history.

Year	Minimum wage rate
2013	RM900 per month (RM4.33 per hour) for Peninsular Malaysia, RM800.00 per month (or RM3.85 per hour) for Sabah, Sarawak, and the federal territory of Labuan
2016	RM1000 for Peninsular Malaysia, RM920 for Sabah, Sarawak, and the federal territory of Labuan
2019	RM1100 for the whole of Malaysia
2020	RM1200 for the whole of Malaysia
2022	RM1500 for the whole of Malaysia

What is a living wage?

When talking about the living wage, I’ve always personally liked the Malay word for living wage, which is; ‘Gaji Bermaruah’.

Directly translated, the word basically means dignified wage, which insinuates that the wages paid to workers should not only be liveable, but live with dignity in not having to scrape by.

And that’s what the living wage should be. The definition of a living wage is a salary that allows individuals or families to afford adequate and socially accepted shelter, food, and other necessities.

All this is not achievable with just the minimum wage.

According to a report from Bank Negara Malaysia, the living wage in Kuala Lumpur is RM2700 for a single adult, a far cry from the RM1500 the minimum wage is set at currently.

For couples without children, a living wage for the household is RM4500 per month. Which means that if both of them are making minimum wage, they are still RM1500 short.

And if said couple has two children, they now need RM6500 per month to maintain a liveable standard of living.

Minimum wage vs living wage

So why not just increase the minimum wage to make it liveable?

Now a solution that is always touted to solve the minimum wage problem is to just increase the minimum wage to make it liveable.

But, it’s not that simple.

The Malaysian Employers Federation’s president Datuk Dr Syed Hussain Syed Husman has stated previously that if the minimum wage is to be reviewed, it needs to be realistic.

Datuk Dr Syed Hussain believes that any revisions to the minimum wage should be done while considering the needs of every parties involved.

“”We believe that companies that are doing well are paying above the minimum wage but Malaysia is 97 per cent SME. All are working to make ends meet,” he said in a news report.

And, there are also cons to increasing the minimum wage, such as;

• Increased inflation

One of the very popular reasons touted by opponents of raising the minimum wage is that it will lead to increased inflation due to the increase in operating costs for businesses; which will lead to increased prices of goods and services and in turn increase the necessary living wage.

This is called cost-push inflation, and will lead to a wage-cost spiral where people will demand an increase in wages to offset the rising cost of living, but companies will increase the price of their goods and services to recoup the additional costs from increasing wages.

• Job losses

Opposition of increased minimum wages also likes to point out that if the minimum wage is increased, then many people will lose their jobs due to businesses having to cut manpower to maintain profitability, or turning to automation, which will lead to job losses.

In Malaysia, the fear of job losses has also been used as a warning against the government to not revise the minimum wage haphazardly, as said by Sarawak Housing and Real Estate Developers’ Association (Sheda) president Augustine Wong Chung Ho.

“Some employers are forced to pay more in wages, hence they will end up hiring fewer workers while workers who were perhaps willing to work for lower wages would be denied work opportunities as a result of government mandated (or increased) minimum wage,” said Augustine.

However, this might not really be the case.

A study done by the Institute of Berkeley in University of California has shown that minimum wages do not cause disemployment effects, even among low – wage industries.

• Increased competition for minimum wage jobs

And finally, increasing the minimum wage might also increase competition for minimum wage jobs, as if the minimum wage is too high, overqualified people might apply for minimum wage jobs, which will impede younger, less experienced entrants to the job market from obtaining work and gaining experience to move their careers forward.

How other countries address minimum wage

There are several solutions touted by economists, such as a specific industry based minimum wage instead of a blanketed one, as the industry-specific minimum wage will be able to address the concerns and needs of each specific industry.

Some economists also suggested that instead of having to biannually review the minimum wage, the government can look into a system where the minimum wage is tethered to the cost of living and inflation rate.

But perhaps, we can look at other countries and see how they approach the minimum wage problem.

Minimum wage case study : Luxembourg

Luxembourg might not be popular traditionally as a tourist destination, but their claim to fame is that they have the highest minimum wage in the world, set at EUR 3,085.11 a month (EUR 2,570.93 for unskilled workers over 18).

However, this does not mean that Luxembourg is free from the minimum wage problems that are plaguing Malaysia. According to this website, while the minimum wage might be high, Luxembourg is also home to one of the highest costs of living in the world.

The average cost of living in Luxembourg is between EUR 6000 – EUR 8000, which means that even with Luxembourg’s highest in the world minimum wages, the minimum wage is not liveable.

However, Luxembourg’s high minimum wage is supported by their strong social welfare system which includes entitlements for their citizens such as maternity, illnesses, work-related safety, and pensions.

Minimum wage case study no 2 : Australia

Another country that has seemingly found a solution to the minimum wage problem is Australia.

While Australia might not have a minimum wage as high as Luxembourg, Australia’s minimum wage can actually cover the cost of living in the country, making the minimum wages a liveable wage.

Australia’s minimum wage is set at an hourly rate of A$23.23 per hour, which means that a standard 38-hour working week equates to a salary of A$882.80, and a monthly salary of A$3528.

In comparison to this, the cost of living in Australia is estimated to be at around A$3422 monthly, which means that the minimum wage is just enough to cover the cost of living in Australia.

Malaysia’s minimum wage dilemma

While Luxembourg and Australia might be the best real life example to show us what a possible solution to the minimum wage problem, questions might be raised on the viability of the same strategy being adopted for Malaysia.

For one, Luxembourg is one of the smallest countries in the world, with only an area of 2,586 square kilometers, and with only 653,103 citizens, it also has one of the smallest populations in the world.

Compared to that, Malaysia has an area of 330,803 square kilometers, more than a 100 times bigger, and a population of 33.94 million people.

Meanwhile, Australia’s solution of just setting the minimum wage at a rate where it can cover the cost of living sounds like the ideal solution, but it’s also hard to execute in Malaysia for one simple reason; the funding.

In 2022, Australia recorded a Gross Domestic Product of 1.693 trillion USD, which is massive compared to Malaysia’s GDP of 407 billion USD recorded in the same year.

And, even though Australia recorded a higher GDP than Malaysia, Australia is also less populated than Malaysia, with a population of 26.01 million people compared to Malaysia’s 33.94 million people.

So it’s safe to say that maybe, Malaysia just doesn’t have enough money for the same solution that Australia is using.

Then what can Malaysia do?

Proposals for minimum wage above RM2,000

A recent UNICEF report had revealed that a minimum wage of RM2,102 is needed to keep Malaysia’s urban poor above poverty.  This figure is closer to the RM2700 living wage recommended by Bank Negara in its recent report on the minimum living wage to afford a minimum living standard in Malaysia.

In fact, Malaysia’s civil servants were recently given one of the highest pay hikes earlier this year that would ensure that their overall minimum pay is over RM2,000.

The minimum wage is a complex issue that almost every country is grappling with, so perhaps there is no such thing as a perfect solution. Although we might not know what the solution might be, we do know one thing; In its current form right now, the minimum wage is not doing what it is supposed to.