On Minimum Wage
Wolves once roamed freely in the region in the American West we now call Yellowstone National Park. With the arrival of settlers taking up space across the land, the wolves were seen as a nuisance, and from the late 19th century federal and state laws began to allow the hunting of wolves by the public, even within national parks. This was called predator control, and it was a policy that made sense to the people at the time.
By 1926, grey wolves were extinct within Yellowstone.
If you’re a child that sees wolves as bad predators and other animals the wolves eat, like elks and bison, as nice cuddly herbivores that deserve better in life than to be eaten by wolves, you might think this is a net positive outcome.
In fact, what happened next, was something ecologists have since invented a term for: trophic cascade.
The elk population exploded into the tens of thousands.
This resulted in the overgrazing of willows and aspen trees.
Beavers need those trees for food, shelter, and dam building. So guess what? The beaver population crashed.
And with that, less dams appeared, and whatever dams that have been built weren’t maintained, so the rivers spilled over to its surroundings, marshy ponds turned into streams, which then causes land erosion. You can imagine many plant and animal species were affected by these landscape alterations.
Meanwhile, the disappearance of wolves also meant the disappearance of carrion for scavenger animals to feast on. Their population reduced.
What other animal rose up the food chain? Coyotes. Coyotes then drove down another set of prey animals, such as antelopes, foxes, and rodents.
These are just a few outcomes of the domino effect that can be attributed to the at-that-time sound policy of eradicating wolves. Was that good for the ecology of Yellowstone National Park? Maybe that’s a subjective question. Maybe it depends whether you’re Team Beaver or Team Elk or Team Coyote.
Whatever the case, the park rangers found it didn’t make maintenance easier. At some point they had to start hunting down elks themselves, lest the overgrazing of willows and aspen crosses a disastrous tipping point. Some decades they were too successful and the public would complain about the lack of elks, so the park rangers had to pull back on killing elks. So the elk population see-sawed back and forth. It was like, now having removed the wolves, they now have to perform the task the wolves perform as apex predators, but humans don’t know how to strike the right balance.
Which brings up the question: maybe there’s a point for the wolves to be there?
The US government thought so. In 1995, some wolves were captured in Canada and brought in to be reintroduced into Yellowstone. While the ecological benefits are still debated, the fact is elk and coyote numbers have dropped, beaver colonies have increased, scavenger animals have recovered, and aspen trees are growing again.
The point of that little piece of history, is to illustrate how ecosystems behave. Basically they do not behave like machines (in which changing an input will produce an expected, predictable output).
But many people seem to have the misconception that the economy behaves like machines, when in fact the economy behaves more like an ecosystem.
And it is this misconception that leads a lot of apparently educated people to push for an immediate rise in minimum wage, and to bite the head off of anyone who dares to advise caution and explain why caution is needed, calling them all kinds of names whose meanings rhyme with ‘heartless capitalists’.
Why did the issue of minimum wage flare up on Twitterjaya recently? As I understand it, the sequence of events is this:
Early in February 2022, the current Human Resources Minister M Saravanan announced that the minimum wage is to be raised from the current RM 1,200 to RM 1,500.
Prologue: this RM 1,500 figure was a Pakatan Harapan manifesto promise; under PH the plan was to increase the minimum wage incrementally, by RM 100 per year, until it would reach RM 1,500 by the last year of its tenure in 2023. For that, PH was attacked and lambasted by apparently educated people for “not fulfilling its promise” and not being serious about protecting the welfare of the low income, and some other such outbursts.
To his credit, current Minister Saravanan agrees with this policy and has stated so over the last couple of years, but after PH last revised the minimum wage to RM 1,200 in 2020, it wasn’t increased anymore, as the Muhyiddin administration neglected to continue the policy.
And now Saravanan is proposing a straight jump of RM 300 within a year.
Soon after that announcement, organisations like the Malaysian Employers Federation and Federation of Malaysian Manufacturers both complained that the 25% rise is too drastic, and the conditions for many businesses, in particular micro, small, and medium enterprises (MSMEs) are presently too fragile to take such a spontaneous hit.
More recently, the MP of Kangar waded into the issue with the following comment:
What follows is a cascade of apocalyptic tweets attacking the MP for wanting to keep poor people poor.
Let’s play it out: what could happen if the government does raise minimum wage to RM 1,500 in one stroke? For employees where companies and businesses are able to take the shock, good for them. Mostly these are big corporations, the kind often decried by very left-wing, socialist folks — ironically these big corporations will emerge alright; perhaps they might fire a small amount of workers to distribute their pay to the rest.
(Yes, they shouldn’t do this, instead the C-level executives of these big corporations should cut out part of their overly lucrative bonuses and pay to keep all their workers. But they won’t. Unless you come up with a legal mechanism that obligates them to do this; but the left-wing, socialist folks are not demanding that. They’re demanding an immediate raise in minimum wages.)
Who’s not going to be alright? A portion of SMEs, including the peniaga kecil that YB Amin is calling attention to. We’re talking restaurants (mamak, kopitiam, etc), who may be forced to let go of workers, which makes their establishment even less desirable because service quality will suffer due to shortage of staff. Some restaurants will just have to shutter because, as everybody is aware, F&B margins are often tight even in the best of times, and we’re now far from the best of times. Now extend this situation to sundry shops, small factories, small farms … And now think about the rural regions of the country, where an obligation to pay their local workers RM 1,500 is overkill.
Some say, well, maybe businesses will have to raise the prices of their goods and services in order to keep their workers at a higher salary. Congratulations, you just bumped up inflation, and maybe this price inflation will hit the people who are least able to absorb it.
Now, some people have this very inhumane response: let them close shop.
But imagine this happening at scale across the country — again, don’t imagine big corporations (they’ll be fine), but lower income people who happen to own small businesses who can no longer hire and/or have to close shop (i.e. adding themselves to the unemployment pool). Unemployment will increase. You have now created a situation where, after this exercise, people who still managed to retain their job will come off better than before, but a lot of people will suddenly be out of a job (or business).
Someone then said, well, simple, the government should step in and help those who have lost their jobs, or maybe setup subsidies to help businesses impacted by this new law.
Except, this government doesn’t do it. Just because the government should do something doesn’t mean it will happen. (I’ve written elsewhere about how we need to be careful not to mix up “should/supposed to” hypotheticals with the “is/are” reality we actually live in.)
In fact, watching how the PN/BN administrations have functioned during, say, the economic crisis caused by the pandemic or the recent floods, it’s unlikely this government will prepare contingency plans that help take care of individuals or businesses unfairly impacted by a sudden minimum wage rise.
So those hundreds of thousands (let’s say) who are out of a job will now be even more frugal with their spending, which depresses demand, which threatens those businesses who are just scraping by when the minimum wage law was introduced. So more will close down in another year. More who are out of a job. People get more desperate. There are not enough gig economy jobs (such as Grab or LalaMove) to absorb this amount of unemployed and underemployed people.
A policy that has the intention to take care of lower income folk has now caused a significant portion of them to be worse off.
Tax the corporations then. Because, it looks like this minimum wage policy has empowered them even more, right? With MSMEs dying left and right, it’s possible big corporations will garner more profits. But it also gives them more economic (and by extension, political) power, which means they are even more able to push back against governments who want to compel them to give up their profits to redistribute to the needy. So this doesn’t happen.
Big heartless corporations, the real target of the apparently educated people who have been screaming for a minimum wage law to protect the lower income folk (but are really more excited, at least on social media, when they get to type profanities against big corporations or “defenders of capitalism”) ironically will emerge stronger.
I am not saying this sequence of events is the definite pathway of events. Much depends on the weightage of each parameter, and if you have even a cursory understanding of chaos theory, you’ll appreciate that the interconnectivity of all these parameters will lead to a fundamentally unpredictable outcome.
That interconnectivity is the key. It’s what separate machine-like systems from ecosystems. That interconnectivity is why economies are a bit like weather systems, or air turbulence.
But that sequence of events I laid out is sure as hell more likely than “raise minimum wage immediately so that the working class will be able to survive”. Some will, many will likely be worse off.
I’m just an economics graduate, who didn’t practice it after graduation. I didn’t lay out that sequence of hypotheticals as a way to prove that I have a better argument; my point is that many of the tweets attacking Amin Ahmad are way too simplistic, and wielding their simplistic notions, they are unfairly projecting ignoble and cartoonishly dastardly motivations (which are no more than presumptions) on the good MP of Kangar.
For more reasoned discussions, look out for actual, professional economists. (To be honest, I haven’t seen many wading into this issue at present.) For a starting point, I agree with the notion espoused here by Asia School of Business’s Economics Professor, Melati Nungsari: “let’s look at the data”.
My argument here is not that minimum wage is a bad thing. If that is what you read from all of this, you’re the problem.
And a lot of you are the problem. Some have accused the MP of Kangar of being against minimum wage because of that tweet and his subsequent replies. (While I’m defending his stance here, note that Amin Ahmad is not a politician I always agree with.)
But there is nothing in what he said that implies he is against a minimum wage. He’s saying: look at the plight of these other people who would be adversely impacted by a drastic minimum wage increase. These are not big corporation CEOs. These are people. With families and obligations. If they lose their income as a result of a minimum wage rise, with no support system to help them out, how is their suffering different from an existing underpaid worker?
The point is, applying a binary, linear way of thinking is evil. These apparently educated and self-righteously compassionate people are behaving like absolutists. Who’s another famous absolutist? George W. Bush, with his “you’re either with us or you’re against us” motto, as he takes his nation into a needless war with Iraq. That kind of attitude breaks the world into discrete groups (often binary), and when an individual says something that approximates a particular group, they lump that individual into that group wholesale.
It’s that impulse to label, to stereotype. In political Twitterjaya, some of these same people have been yelling at MUDA: “What are you? Are you PH or BN? Are you left-wing or right-wing? Why don’t you identify yourselves?? Are you being disingenuous?!” They make sweeping inferences: if MUDA accepts Dian Lee then they must be pro-Mahathirists and for the capitalist class. But then MUDA’s president was virtually the only MP in Parlimen who champions a pandemic windfall tax; and its funding methods are inspired by Bernie Sanders’ election campaign — which are more on the socialist side of the spectrum.
This inability to deal with complexity and uncertainty turns them into groups akin to religious nuts. Faced with a world painted with gradations of grey colours (but none are fully black or fully white), they insist on breaking the world into sections, and labelling this darker grey section as black, and that lighter grey as white.
And as long as they don’t see their absolutism as an impediment to the progress of nation-building, they will continue to scream at the wrong people, and endangering the lives and livelihoods of people they purport to champion.
Personally, I see no reason not to support an increased minimum wage, and hope that one day we will see it rise beyond the current RM 1,500 target and arrive at something approximating a living wage.
I do believe, though, that incrementalism is the way to go. As I relayed earlier, RM 1,500 was the PH administration’s figure; PH just wasn’t going to raise it to that amount in a snap of a finger. It doesn’t affect big corporations that much; they might protest and feign suffering that they have to pay their workers more, but then again, not all corporations are bad. The recent announcement by Aeon that they are preemptively promising a RM 1,500 minimum wage ahead of the government’s schedule is an example. But for MSMEs whose revenue margins are more precarious, having incremental increases gives them time to plan how they will absorb the shock.
And of course, there are counter-arguments against minimum wages, and also alternative methods to protect the welfare of lower income folk, which have varying levels of plausibility in terms of their likelihood to be implemented in a country like Malaysia. I will leave you to Google them, should you honestly want to engage in this debate in a fruitful, constructive manner.
