August 19, 2016

Is it the right time for a minimum wage?

The recent news, that the national committee in charge with setting up a minimum wage has just proposed a 3,600kyats per day figure, compels me to ask if it really the right time to set up the minimum wage and if it is really necessary, after all.
There are many arguments for having a national wage, such as most countries having it, providing a survivable wage to lowest income earners, etc.
Most people start jumping onto the minimum wage bandwagon without first understanding what the implications would be for people of Myanmar.
Almost everyone assume that minimum wage will help the poorest segments of Myanmar population; people without any skills, qualifications or experiences such as cleaning ladies, tea shop boys or the farmer families who move up to the cities in search of a better living.
It would be so easy to criticize the government and complain how the government is doing not enough for this most vulnerable group of people and the perfect solution would be a minimum wage. Because their wages are not rising fast enough, they cannot keep up with the ever-increasing cost of living and growing income inequality.
So, minimum wage is supposed to help these people, right?
The arguments against having a minimum wage are aplenty…
•    If a young worker without any qualifications or experience applies for job at a garment factory, the factory owner knows that he/she cannot be as efficient or productive as an experienced worker. If the owner is forced to pay an artificially set minimum wage, he will choose not to employ her/him, as it does not make financial sense. He can find a betterskilled worker at that price.
In this instance, instead of working for less than minimum wage until he gets more experience, the young worker is now unemployed. How would he improve his standard of living without an opportunity for gainful employment and gather relevant skills and experience.
In fact, in Western Europe, the average jobless rate is twice as high in countries with a minimum wage compared to those with no minimum wage. (see picture)
At this very time, where Myanmar workers need more skills and better work experiences, minimum wage discourages skills upgrading, as workers think they can still earn a minimum wage without any skill set or employability.
•    Minimum wage leads to inflation; setting up the minimum wage will definitely cause cost-push inflation. If a manufacturer is forced to pay a higher wage, he has to pass on this increased labour cost into increased selling prices, there by raising the general price of goods and services. We can hardly afford a high inflationary environment at this point of time.
As mentioned in my previous article in Global New Light of Myanmar on June 14th, high inflationary currency will depreciate against a stable currency like USD. Do we really need further depreciation of Myanmar Kyats at this point of time? On the very day of minimum wage news appearing in the press, Myanmar Kyats depreciated by close to 50kyats (nearly 4%) against the USD.
•    Almost 100% of the burden of the minimum wage will be borne by business owners. Is it wise to let them bear all, in an environment where we need more private investments and more FDIs?
Myanmar domestic economic growth is slowing down due to the downturn in the private construction sector and the wait and see attitude coming from the uncertainty over upcoming elections. The burden of the minimum wage should be borne by all society and taxpayers at large, not only by businesses that employ many workers.
The poor could be better provided for through tax rebates, training grants and incentives, job apprentice programs, etc., with funding from all taxpayers.
•    If we looked at the United States, a high minimum wage has done little to reduce income gap or growing social inequalities. Singapore, on the other hand, does not have a minimum wage, yet their workers earn more than the US counterparts and income inequality is lesser than the US.
It is imperative that we examine the potential effects of minimum wage in the long term and decide if we really needed one. It would be wise for lawmakers not to succumb to populist measures that will gain little votes but more demonstrations yet damage our currency recuperating at this very moment.


Related posts

Translate »