How to help Malaysians earn RM1500 or even RM2500 a month without over burdening our economy

Teh Yong Teck 

Even with a minimum monthly total pay (excluding OT) of just RM900, the additional costs to our economy would be substantial. The government indicates about 3.3 million Malaysians now earn below RM700 per month. The immediate additional cost is at least 3.3 million x RM200 x 12 months=RM7.9 billion per year.

There are also about 2.6 million legal foreign workers (excluding domestic maids) currently earning RM900/month (inclusive of 3 hours a day contractual OT based on a basic of RM550/month per 8 hours day). With RM900 minimum monthly pay for an 8 hour day, the additional unsolicited increment in payout to foreign workers is 2.6 million x [RM350(basic)+RM196(OT)] x 12months=RM17.0 billion per year. Total additional costs to our economy come to a huge RM24.9 billion per year.

1. About 68% of total additional pay increments are enjoyed by foreign workers. This additional amount would almost be wholly remitted out of and a loss to our country.

2. For perspective purposes, RM24.9 billion is equivalent to 89% of total dividend of RM28 billion expected to be contributed by Petronas to Malaysian government this year! It is quite a lot of money to our economy.

3. There are only about 10 million working adults in the country. This means the average additional costs per working adult is about RM207.50/month. The net effective increment to those earning RM700 is in fact minus RM17.50! Everyone currently earning above RM900 will have to bear RM207.50/month due to the additional costs of goods and services. This would be a big burden to many low income earners.

I hope Malaysians will realise the immediate substantial costs of the proposed increment that have to be borne by each working adult. Foreign workers have a choice whether they want to work in Malaysia based on a contracted pay package. Simply increasing their pay would only encourage more foreign workers to want to come here to work. For the same pay, the less enthusiastic locals would soon be left far behind. Foreign worker earnings should best be left to free market forces. The cost of employing foreign labour should however be gradually increased.

Generally, establishments with the lowest pay also have the most foreign workers. To reduce the burden of the immediate additional costs to our economy by half as well as encourage more locals to work at such establishments, foreign workers should be excluded from any minimum pay regulation. Instead, introduce a compulsory fund in each establishment where employers will have to set aside, say, RM150 per month per foreign worker. Theoretically the fund size amounts to RM390 million per month. This fund will then be evenly distributed monthly to every local employee that earns below RM1,500 per month in the same establishment. Due to the relatively large number of foreign to local workers in many low pay establishments, employees earning below RM2,500 will next be able to benefit from the fund once every local worker gets RM1,500/month.

The management of this fund needs to be closely monitored by a government body which would enjoy a small fixed percentage of the fund to recover its operating costs. Meanwhile the crackdown on establishments harbouring illegal foreign workers would have to be greatly intensified. The compulsory contribution will be gradually increased over time to encourage locals to work at such establishments as well as discourage the employment of foreign workers while businesses can get all the workers they need for their growth.

The net effect is the natural redistribution of local workers to establishments with more foreign workers and more importantly a substantial increment in real income to a broader low income target group while the dynamics of productivity versus costs gradually ease into our business community, and economy at large, and over a longer period of time. This longer transition time also allow employees to gain experiences and their skills upgraded as their real income increase. Meanwhile, employers will also naturally evolve by gradually adopting new technologies in order to improve productivity for survival.