1. 1
The minimum amount of compensation an employee
must receive for performing labor. Minimum wages
are typically established by contract or legislation
by the government.
As such, it is illegal to pay an employee less than
the minimum wage.

2. o Acc. To section 5(3) 1961 minimum
wages Board Can fix minimum wages
for time work ,piece work overtime
work ,and 0work on weekly rest day
and paid holidays. The time rates
recommended by the board may be on
hourly, daily ,weekly, monthly basis
2

3. 3
A binding minimum wage creates,
 A surplus of unskilled workers (more unemployment).
 Reduces market efficiency
 Non-price rationing - employers may discriminate certain types of
job applicants.
 More labour supply from teenagers (foreigners) - people in need
may end up losing jobs.
In contrast, the competitive equilibrium market
without price floor is more efficient.

4. 4
The intended objectives of establishing minimum wages are,
1. To prevent exploitation of workers by employers,
2. To promote a fair wage structure,
3. To provide a minimum acceptable standard of living
for low-paid workers and,
4. To alleviate poverty, especially among working
families.
(ILO, 1992).

5. 5
There are two basic mechanisms for
setting the minimum wage.
1. A statutory minimum wage is set by
government, possibly involving
consultations with trade unions and
employers.
2. Minimum wages are determined through
collective (tripartite or bipartite)
negotiations. Collective agreements can
set national or sectorial (industry,
occupational) minimum wages.

6. o Poverty line
o Employers ability to pay
o Consumer price index
o Real unemployment rate
o Productivity growth
6

7. • Help families
•Reduces tax burden
•Employment incentive
•Business budgets
•Common reference
7

8. • Unemployment
•Cost push inflation
•Black market
•Poorest don’t benefit
•Limit impact on poverty
8

9. 9
What is the rationale for a minimum wage in Malaysia?

10. 10
1. To ensure basic needs of workers and their families
are met,
2. To provide sufficient social protection to workers,
3. To encourage industry to move up the value chain
by investing in higher technology and increase
labour productivity,
4. To reduce nation’s dependence on unskilled foreign
labour.

11. 11
Essentially the debate on minimum wage hinges on,
 Workers want a minimum wage as a means to increase wage
levels to provide sufficient purchasing power to enable a
worker to have a basic standard of living
 Employers reject it as an increase cost of doing business and
hurt competitiveness.
 The government aim to develop the country into a high-income
nation and fully developed by 2020.
 The impact on employment, training & productivity, inflation
and the country’s competitiveness.

12. 12
PROs CONs
1. Fulfillment of basic human rights
2. Happy workers are productive
workers
3. Better bargaining power for workers
4. Promote pay equity
1. Uneven wage distribution
2. Increase of unemployment
3. Denial of rights at workplace
4. Outsourcing

13. 13
 Possible disadvantages of a minimum wage
Although the government are now committed to legislate the minimum wage,
there are still plenty of economists who believe that setting a pay floor
represents a distortion to the way the labour market works because it reduces
the flexibility of the labour market
i. Competitiveness and Jobs
Firstly a minimum wage may cost jobs because a rise in labour costs makes it
more expensive to employ people and higher labour costs might damage the
international competitiveness. Rising unemployment worsens the living
standards of those affected it has a negative impact on poverty.
ii. Effect on relative poverty
Is the minimum wage the most effective policy to reduce relative poverty?
There is evidence that it tends to boost the incomes of middle-income
households where more than one household member is already in work
whereas the greatest risk of relative poverty is among the unemployed,
elderly and single parent families where the parent is not employed.

14. 14
 Can a minimum wage actually increase employment?
Yes? – depending on the circumstances in the labour market when a pay floor is
introduced and also on what happens to the productivity of labour when a high
(statutory) rate of pay is introduced. There are two main explanations for the
possibility of higher employment
i. The Keynesian argument that higher wage rates will increase the real
disposable incomes of lower-paid workers many of whom have a high
marginal propensity to consume. Thus they will increase their own
spending and this will feed through the circular flow of income and
spending
ii. The efficiency wage argument that raising pay levels for low-paid
employees may have a positive effect on their productivity and efficiency.
In addition to the psychological benefits of being paid more, businesses may
take steps to improve production processes, workplace training etc if they
know that they must pay at least the statutory pay floor.

15. 15
Has minimum wage worked? (Based on UK NMW report)
1. Employment: For most of the years since the NMW was launched,
unemployment has been falling. The jobless total is now increasing at a rapid
rate but the main cause has been the domestic and global economic recession.
2. Inflation: In many sectors firms find it hard to pass on higher wage costs to
final consumers – limiting the inflationary effect of the minimum wage
3. Wage costs: The minimum wage affects only a small proportion of workers and
the effects on the wage bills of most businesses is not a significant factor in
their employment decisions. In the short term, the demand for labour tends to
be inelastic with respect to changes in wages
4. Discrimination: The minimum wage has had an impact on the earnings of part-
time female workers.
5. Productivity: It is hard to identify any strong positive effect on labour
productivity - but efficiency gains have been made in most low-paying
industries, a trend which started before the minimum wage was introduced.

16. 16
Three conditions have to be met in order for the minimum wage to have a
positive effect on the standards of living of workers and their families,
i. Most workers are entitled to receive at least the minimum wage in
exchange for their work. No workers or very few workers lose their jobs
because of the minimum wage. Or in a case where job losses are entailed,
workers can find another job, i.e. the economy is growing and some
sectors are creating jobs.
ii. Employers comply with the minimum wage. Compliance with the
regulations implies both that employers are organized and have been
consulted during the minimum wage fixing process and that there is a well-
functioning mechanism to enforce the regulation, such as a labour
inspectorate.
iii. There is no increase in prices following the rise in the minimum wage.

17. 17
Minimum wage legislation should be used as an instrument to remove
imperfections in the labour market and not meant to be used as an
instrument for achieving development plan objectives because by itself
it is a lame instrument and is an inappropriate instrument to address
poverty.
For Malaysia – Minimum Wage will act as means,
• to intervene the market – main justification for minimum wage
• to address inefficiencies (imperfection) in the labour market
• to reduce nation’s dependence on unskilled/ cheap foreign labour.