The first country to have a floor wages was New Zealand in 1896, followed by the Australian state of Victoria in 1899. In the British empire, individual towns had regulation of wage levels for hundreds of years. By 1909, the first semblance of a national wage law was created, which gradually evolved over the century to become a National Minimum Wage law in 1999. The United States established a permanent minimum wage law in 1938, after a 1933 law was declared unconstitutional by the Supreme Court.
Canada introduced provincial minimum wage laws in 1918, while Ireland did not do so until 2000. In Europe, countries such as Norway, Sweden, Finland, Denmark, Switzerland, Germany, Austria, Italy, and Cyprus have no such laws in effect to this day. Instead, these countries rely on collective bargaining through employer groups and trade unions to set minimum wage levels.
Outside Europe and North America, minimum wage laws vary. In East Asia, industrialized countries like Taiwan, South Korea, Japan, and Thailand have longstanding laws. Other countries in the region such as Singapore and Malaysia do not. China introduced its first minimum wage law in 2004, setting standards based on province and municipality. India has had laws in place since 1948 as the minimum wages vary by region as well as trade.
In poorer, developing countries, many governments have enacted minimum wage laws but have had little success enforcing them. In many African and Asian countries, a large portion of the labor force works in the informal sector, which governments cannot regulate. Also, lack of government control means even formal sector businesses often ignore minimum wage laws. For instance, Niger has minimum wage laws in place, but a recent study found that 98% of businesses do not comply with the law. In developing countries where the average wage is lower than the wage required for sustenance, introducing a minimum wage law set at a sustainable wage can have the undesired effect of increasing unemployment, as businesses are no longer able to pay their workforce at the increased level.
Throughout the world, governments have taken differing approaches to minimum wage, and the consequences of those that have passed legislation have varied. What is undeniable is that minimum wage is a constant subject of debate in legislatures all over the planet.
2.0 MALAYSIA CONTEXT
1.1 LEGAL PROVISIONS ON WAGE AND SALARY DETERMINATION
The legal framework for salary and wage payment in Malaysia is governed by the Employment Act 1955. The Act defines wages as basic pay and all other cash payments made to employees for their contract of service. The following payments, however, are not included as part of wages:
The value of any house accommodation, the supply of any food, fuel, light or water, and medical attendance.
Contributions paid by employers on their own account to any fund or scheme established for employees’ benefit or welfare including pension fund, provident fund, superannuation scheme, retrenchment scheme, termination scheme, layoff scheme, retirement scheme, and thrift scheme.
Traveling allowance or the value of any traveling concession.
Any sum payable to employees to defray special expenses entailed on them by the nature of their employment.
Under the Act, payment of wages must be made no later than the 7th day after the last day of a wage period. A wage period must not exceed one month, and unless this period is specified in a contract of service, it is deemed to be one month. That is, employees are paid at least once a month. Employers, however, may pay wages at shorter intervals, say once a week or once every two weeks.
The Employment Act does not govern every aspect of wages. For example, wage rates or levels are not regulated by the Act but are determined through negotiations between an employer and an employee or, in the case of unionized companies, between the representatives of the company and the trade union. However, wage determination for some employees, such as hotel and restaurant workers, are subject to the minimum wage requirements of the Wage Councils Ordinance 1947.
Malaysia’s Industrial Court and Industrial Arbitration Tribunal, in some of their judgments, have indicated some factors that should be considered in determining wage rates and wage levels. In one Industrial Court case, the Court determined that in fixing wage levels, employers should
compare their wage levels with that of similar or related industries;
consider whether their wage levels are fair, giving due consideration to the cost of living; and
take into account their financial capacity to meet such wage levels.
In another case, the Industrial Arbitration Tribunal stated that due consideration should be given to the following factors in determining wage and salary levels and increases:
the cost of living,
the wages and salaries paid by comparable establishments in the same region,
any inconsistencies in the wage and salary structure of the company itself, and
the financial capacity of the company to institute wage and salary increases. In addition, the Tribunal opined that emp loyers should consider factors such as labor productivity, prevailing wage rates in similar industries in the same region and the present economic condition as well as the future prospects of the industry in determining wage levels (Ayadurai, 1985)
1.2 FACTORS AFFECTING SALARY LEVELS IN MALAYSIA
Several factors have been identified as contributing to the increase in pay offered to employees in Malaysia. The tight labor market is a major factor causing the increase in pay among occupations. In the JB area, the close proximity to Singapore and the increased mobility of workers create a condition whereby companies in the area have to compete with Singaporean companies for Malaysian workers.
Tight Labour Market – Malaysian employers compete for the same number of workers. Although the government has encouraged the intensive use of modern technology in exchange for human labor, the dependence on labour still continues.
Proximity to Singapore – Singapore offers comparatively higher salaries than Malaysia. The attractive salary offered has attracted a considerable number of Malaysians to work there. Malaysian employers in the JB area not only have to compete with their Malaysian counterparts for workers but also with Singaporean employers.
Influx of Foreign Labor – Malaysia was a major importer of foreign workers. The use of foreign workers is less costly and may moderate salary level has limited truth. Among the blue collar laborers the cost of foreign workers is not necessarily lower. As for professional and managerial positions, the use of expatriates is more costly and provides a higher ceiling by which Malaysians compare their salary. Even then, this impact is limited to only certain employment categories.
Increased Mobility of Malaysian Workers – Workers in urban areas such as the Klang Valley, Penang, and the JB area are paid better than those working in the rural areas. The salary differences between various parts of the country attract people to areas offering a higher rate. Malaysian workers have a tendency to move to those high-paying areas. This has the effect of raising the salary of workers in the newer industrial areas. In the long term, one can expect salary differences between the industrial areas in Malaysia to become smaller.
1.3 UNIONIZATION AND SALARY DETERMINATION
Any discussion about salary and wages will not be complete without examining the role of trade unions. As Feb 2009, The Malaysian Trade Union Congress (MTUC) represents the unions with 662 unions representing 805,654 workers. Government employees are represented by the Congress of Unions of Employees in the Public and Civil Service (CUEPACS) [zealand-economics-essay.php#ftn1" name="bodyftn1">1] .
August 1996 the National Labor Advisory Council (NLAC) formulated guidelines on wage reform. The purpose of the guideline is to provide principles for employers and unions in negotiating wages and other benefits. The most important part of the wages reform is that wage increment which commensurates with employee productivity and company performance.
Three specific issues are addressed in the guidelines.
Wages should consist of fixed and variable components. Fixed payments are paid on a monthly basis or a more frequent period. The variable components are yearly increment, bonus or other infrequent payments.
Changes in basic salary or fixed payment should consider relevant factors, such as cost of living, and reflect the value of the job.
The variable components, such as wage increase, must take into account a company’s profitability and the performance of the individual employee or group of workers or organization. The wage increase should be less than productivity growth.
Although these moves were intended to bring wage increase to a more reasonable level, it is uncertain whether the guidelines had the intended effect. This is partly because the guidelines provided nothing new and practically all of the principles set forth have been defined by either legislation or court decisions. Another reason is that the Asian currency and economic crisis essentially reduced the need to worry about unreasonable wage increases. Unions are now more concerned about protecting what they have.
1.4 Minimum wages in Malaysia
Based on a survey by MTUC, the lowest minimum wage was at Kuala Lumpur for RM273 (workers of Felda Trading Sdn.Bhd) and the highest rate was RM825 (workers of Shell Petroleum at Sarawak). [zealand-economics-essay.php#ftn2" name="bodyftn2">2]
Malaysia does not have minimum wages law however minimum wages set by wages councils involve selected industry which they considered as “vulnerable” such as:
Hotel and catering- Minimum monthly wage of RM 185 for those 18 years and above since 1982.
Cinema workers- Minimum monthly wage of RM 175 for tickets sellers, mechanics, technicians, electricians and carpenters for cinemas with four daily showings since 1981.
Cargo handlers and lighter men- Minimum monthly wage of RM 120 for hatch men since 1977.
Shop assistants- Minimum monthly wage of RM 250 for those 21 years and above in the Klang Valley since 1981 [zealand-economics-essay.php#ftn3" name="bodyftn3">3] .
Government intervention on wage fixing
The government was strongly disagreeing on MTUC suggestion of National Minimum Wage. As in the circular [zealand-economics-essay.php#ftn4" name="bodyftn4">4] , it is stated that the private wages were determined by three underline method as stated:
Market forces based on labor supply and demand;
The wage councils