Minimum Wages Case Analysis

This paper explains the meaning of minimum wages, arguments for and against it, and a case study of Malaysia's implementation of minimum wages. It discusses the benefits and disadvantages of minimum wage systems and concludes that the benefits outweigh the ill effects.

TITLE: Minimum Wages Case Analysis
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Introduction:...............................................................................................................................................2
Minimum Wages Definition.........................................................................................................................2
Arguments for Minimum Wages.................................................................................................................3
 Encourages Workers:.......................................................................................................................3
 Social Stability:.................................................................................................................................3
 Protection of workers:.....................................................................................................................4
 Provides Incentives:.........................................................................................................................4
 Stimulates consumption:.................................................................................................................4
 Administrative Ease:........................................................................................................................4
 Increases standard of living:............................................................................................................4
Arguments against Minimum Wages...........................................................................................................4
 Only employer decides minimum wages:........................................................................................5
 Causes unemployment:...................................................................................................................5
 Does not improve living standard in actual sense:..........................................................................5
 Paying wages does not causes employment opportunities:............................................................5
 Discourages people for higher education:.......................................................................................5
 Hurts small businesses:....................................................................................................................6
Country Case Study.....................................................................................................................................6
How Minimum wages was implemented in Malaysia..............................................................................6
Benefits of Minimum Wages System in Malaysia....................................................................................6
Disadvantages of implementation of minimum wage system in Malaysia..............................................7
Conclusion...................................................................................................................................................7

Introduction:
Food, clothing and shelter are the minimum requirements for the survival of a living being and to
be able to get access to these requirements, it is essential for him to earn a minimum living for
himself. This minimum living which is important for the basic survival of a person is known as
the minimum wage. The purpose of this paper is to explain in detail the meaning of minimum
wages, and the arguments for and against these minimum wages. Further, the example of
Malaysia has been discussed which has implemented this system of wage payment along with
the implications of it for that country.
Minimum Wages Definition
According to the International Labor Organization, the minimum wage has been described as
“The minimum amount of wage or salary that is must for an employer to pay for the work
performed by an employee in the given period; and which cannot be reduced by any collective
agreement or argument”1. Minimum wages, as the name suggests, is the minimum requirement of
the wage to be paid to any worker who has performed his work and was promised a sum against
it. This minimum wage has been pre – decided and may vary from country to country keeping in
mind the general economic conditions of the country and the basic standard of living of the
people. The purpose of this minimum wage is to ensure that no person who is willing and able to
work to earn his living, has to suffer on account of unjust and unduly low wages. It is to protect
them against the atrocities of this world that we live in and to give them an equitable share of the
profit which they have contributed to. The fixation of this wage also helps in reducing income
inequalities in the society and bridging the gap between the haves and the have-nots. The
minimum wage in a country is normally fixed by the government, or a wage council, a wage
board, or any such statutory authority which has been formed for this purpose. The basic need of
this wage fixation is to set a guarantee floor below which no worker will be paid. Generally,
what is included in the minimum wages varies – overtime, any premium pay rates, etc. are
included but any benefits such as car expenses, meals, and employer’s contribution to the
pension fund are not included2.
1.Ahmat, N. (2018). Impact of implementing National Minimum Wage on the Malaysian hotel Employees.
2. Institute for Democracy and Economic Affairs. (2019). Minimum wage increases ‘could result in Malaysian job
losses

Arguments for Minimum Wages
There are various arguments in favor of minimum wages which have been discussed below:
 Encourages Workers: The minimum wages help in encouraging a worker to work hard
and put in his best effort because he knows he will be rewarded for it.
 Social Stability: Minimum wages help in bringing social stability and reducing labor
turnover in the economy because workers who receive a wage which is sufficient enough
to support them are more likely to continue to work at their current jobs. Also, they will
be less willing to leave their current neighborhoods in search of jobs leading the way to a
society which is more stable3.
 Protection of workers: Minimum wage leads to the protection of workers. Those who
receive an adequate wage are able to get access to the basic necessities of life – food,
clothing and shelter - for themselves and their families. It protects them from undue
exploitation and harassment.
 Provides Incentives: Minimum wage helps in providing incentive to the unemployed
workers to find work, as reported by OECD via its online publication Observer4.
Minimum wages help in boosting the morale of those who do not yet have work to look
for work and also of those who are in the lower skill category to improve their skills and
a minimum pay will be guaranteed to them.
 Stimulates consumption: Minimum wage helps in stimulating consumption in the
economy. Consumption is the act of utilizing a resource for the satisfaction of a want. By
paying a minimum wage to those who struggle for the basics in life, the overall
consumption in the economy is being increased because these people spend their entire
paychecks and do not have savings.
 Administrative Ease: Providing a minimum wage leads to administrative ease in the
economy. Every employer does not have to calculate and maintain separate records for
the wages of the workers when he knows that the government decided minimum wage
rate has to be paid. It also leads to ease on part of the workers because any employer
exploiting them and not paying them their dues can be reported in the court if law and
justice will be served.
3. International Labor Organization. (2019). Statutory Minimum Wages – the example of Malaysia
4.Martin, J. (2019). The minimum wage: Making it pay.

 Increases standard of living: Minimum wage helps in increasing the standard of living
of the people. The workers who were earlier living below the poverty line can now live a
life of relative comfort because their basic needs are being fulfilled.
The arguments in favor of minimum wages have been discussed in detail but many have
also argued that no minimum wage must be given to the workers.
Arguments against Minimum Wages
Some arguments against the minimum wages have been discussed ahead:
 Only employer decides minimum wages: Many have argued that it is only the employer
who should determine the minimum wage. Like every seller determines the price at
which he is willing to sell his goods, similarly, it is the seller of the job – the prospective
employer – who should determine the rate at which he is willing to pay to the
employees5.
 Causes unemployment: Many have also argues that minimum wage laws cause
unemployment in the economy because they pay those workers whose skills do not
justify the amount of money being paid to them6. For example, if a worker works at $18
per hour, but his skills only amount to $16 – why will an employer be willing to pay an
additional $2. These additional wages paid to every worker working for the employer will
lead to an increase in the total cost to the employer. This is something not every employer
will be able to justify in running his business.
 Does not improve living standard in actual sense: Minimum wage does not actually
improve the standard of living of those who are living in extreme poverty. It just creates
an illusion of improving the lives of the workers but actually only benefits some on the
basis of those who are even poorer.
 Paying wages does not causes employment opportunities: Many have argued that
paying a minimum wage actually causes unemployment. This is because when the labor
market is extremely competitive, firms will demand less labor at the given minimum
wage rate. They will be willing to employ those who agree to work even slightly at a
lower rate.
55. Mullen, T.(2019).The Best Argument against Minimum Wage Laws: You Don’t Own Other People.
6.National Minimum Wage and National Living Wage – rates and overview.(2019)

 Discourages people for higher education: Research has shown that minimum wage
system discourages the people to continue to pursue a higher education because they get
enticed by the job market. It is a common belief in those living in extreme poverty that a
minimum wage job will help them to get out of that poverty circle immediately whereas a
higher education degree might do that after some years.
 Hurts small businesses: Minimum wage systems actually hurt small businesses more
than large business. Larger businesses can afford to pay a minimum wage but struggling
businesses cannot afford to so that.
Country Case Study
Some have argued that a system of minimum wages should be implemented whereas many have
also argued against it. In this paper, the case study of Malaysia is being discussed in detail to
further highlight the role of minimum wages in the economy of a country.
How Minimum wages was implemented in Malaysia
Malaysia implemented the system of wage payment in 2013 and two rates were implemented –
one for the Peninsular Malaysia and one for Sabah, Sarawak and the Federal Territory of
Labuan7. These rates of minimum wages were applicable to all workers except the domestic
workers employed in the country. For the decision regarding the implementation of minimum
wages as well as deciding the rate of wages, the National Wages Consultative Act of 2011 was
passed and under it a tripartite body by the name of The National Wages Consultative Council
was established. The purpose of this body is to set the criteria for payment of wages and given a
formula to determine the rate of the wages to be given in the country. The board fixed the rate at
RM900 a month for the peninsular region and for the Sabah, Sarawak and Federal territory areas
it has been fixed at RM800 a month.
Benefits of Minimum Wages System in Malaysia
The benefits of this system of payment in Malaysia have been discussed8:
 The wage rate has increased in almost all the sectors (especially the private sector) and
this has led to a boost in the economy. The rate of investments and therefore, the rate of
overall economic growth in the country saw an increase.
7.Tan, R. (2019). Malaysia’s Minimum Wage’s benefits and effects
8 . Neumark,David.(2008). Minimum Wages. Pearson Publications. New York.

 The contributions of the workers to the Employees Provident Fund (EPF) has increased
which contributes to savings for later on.
 With employees having increased their contributions to EPF, the companies have a lot
more resources with them and can afford to pay their employees easily without driving
themselves into bankruptcy. The rate of the profit earning has increased has increased as
a result of this cycle.
 With employees having an overall higher salary base, the banking lending requirements
can be easily satisfied.
Disadvantages of implementation of minimum wage system in Malaysia
Though the above points show a brighter side of the implementation of the minimum wage
system in Malaysia, there are also certain ill effects:
 The companies have started shifting the burden of high wages on to the customers by
increasing the prices of the products and services that they are offering for sale. The
quantum of these prices will only be kept in check if there is competition in the industry
otherwise the prices usually are expected to touch the roof.
 There has been no increase in the productivity of the employees as a result of the increase
in wages. The implementation of minimum wages did not lead to an increase in the
morale of the workers9.
 Some have argued that due to the implementation of the minimum wage system in
Malaysia, workers are being slowly replaced by Artificial Intelligence. Workers are being
let out of their jobs so as to not pay them the minimum wages and are being replaced by
automated jobs.
Conclusion
This paper has explained in detail the concept of minimum wages as well as the arguments in
favor and those against this system have also been discussed. The example of Malaysia which
has successfully implemented the minimum wage practices has also been discussed. After
analyzing all the points discussed above, I am of the opinion that the benefits outweigh the ill
effects. The minimum wage implementation has brought a better standard of living for the
workers (especially in a country like Malaysia) and increased the motivation of the workers to
9. Belman, Dale; Wolfston, Paul. (2014). What Does The Minimum Wages Do? Wiley Publications. London.

look for jobs to earn their living. As far as the arguments against it go, the government should
take the necessary steps to reduce the burden of payment of the minimum wages.

Bibliography
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Belman, Dale; Wolfston, Paul. (2014). What Does The Minimum Wages Do? Wiley Publications. London.
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