A wager on your wages

During a holiday in KL, an American friend of mine made a comment about a recruitment banner in KFC which advertised for job openings with the hourly pay starting from RM3.50. “It’s bizarre how they don’t have a minimum wage policy implemented”, he exclaimed. “How on earth do people get by?!”

Let’s just say he’s not the only one asking such questions.

On lowyat.net, Malaysia’s largest online community, one of the users commented that KFC offered RM4.50 per hour (in 2010), a salary he found “pathetic” and “too low to earn enough just to survive in KL”.

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It seems the logical answer to the problem of low wages would be to implement a minimum wage policy to ensure that people don’t earn less than the amount required to lead a decent standard of living.

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The concept is one that seems self-explanatory – we arbitrarily raise the minimum wage and then people will be earning more and having a better life. There seems to be some truth to this too – according to a recent Chicago Federal Reserve Bank analysis, the increase in federal minimum wage proposed by President Obama would stimulate economic growth in the short run because it would put more money into the hands of households with a greater propensity to spend it.

But that’s just one side of the story.

For one, employers may not be incentivised to raise the salary of their workers above the minimum level, especially if the latter is still doing the same job scope as before.

This is the case in the UK, where a growing number of workers earn little more than the legal minimum. According to Professor Sir George Bain, the introduction of this policy was a “controversial” one, and “has been a victim of its own success”.

Although the minimum wage policy was implemented initially to raise pay across the low-wage sector of the economy, it has only helped those at very bottom and is seen as a benchmark for employers for all types of entry-level staff, even the skilled ones.

This means that in certain industries some employers are taking on millions of very low paid workers with little chance of progression, a practice which in the long run tips the scale on the side of employers…again!

Earlier in June, US Senator Lamar Alexander declared in a hearing that he would prefer to see the minimum wage abolished because he does not believe in its concept.

And it’s not just politicians who are taking a step back in supporting the much-debated policy. In response to an article on six Americans and their personal struggles living on minimum wage, Frayda Levin shared her thoughts that other perspectives should weigh in the debate: Americans whose first job was at minimum wage, but who then received skills that allowed them to move up the wage scale.

In short, the progressive wage model, where a worker gets paid according to his level of skill and productivity, is the most appropriate for countries that want to sustainably emphasise workers’ access to well-paid jobs.

The progressive wage model in Singapore basically means that as long he continues to upgrade his level of skills and expertise, a worker can climb up the wage ladder no matter how competitive or difficult the labour market gets.

If you still don’t quite understand what progressive wage is all about, you can find out more about it here.

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AlvinLee

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