Impact of minimum wage policy from an economics perspective


Continue from previous post on "New Minimum Wage Policy", here we analyze the impact from an economics perspective. Many people said the new policy will jack-up the inflation figures due to higher production costs. Subsequently, it will dampen the GDP growth numbers. Is it true?


The impact on inflation and GDP growth is ambiguous. Setting a minimum wage would boost wages and consumption for workers who remain employed (likely to be the more productive workers, working in companies that have higher profit margin), but would hurt the profitability of businesses that are labor intensive and could potentially lead to higher unemployment rate.


The impact on growth will likely be a net negative in the short-run as it might result in raised cost without an increase in productivity. In the long-run, this policy may bring about a positive impact if it succeeds in encouraging workers to upgrade their skills or for companies to invest more capital to boost productivity.

From an economic standpoint, the minimum wage policy is not the best way to help the lower income households. A gradual phase-in of the minimum wage should help reduce some of the negative impact.

Unless the introduction of the minimum wage policy leads to a widespread upward adjustment in wages, there shouldn't be a significant impact on inflation.


Some SMEs claim that a minimum wage would bankrupt small firms which rely on cheap labor, from Indonesia, Myanmar and Bangladesh. The Malaysian Federation of Employers, whose members collectively hire 2 million workers, said it wants an exemption for the smallest employers and for the policy to be implemented over several years. Ex-PM Mahathir Mohd, who is very influential in the political scene, is also against the minimum wage policy as he believes that it would hurt Malaysia’s competitiveness, especially during economic challenging times.


Source: Credit Suissue report dated 19th March 2012

Comments

Post a Comment

Popular posts from this blog

Exclusive Interview: 2011 8TV Hot Chef (美食型男) Jason Cha

Image
Dubbed as one of the most handsome guy among the participants of popular 8TV shows Hot Chef ( 美食型男 ), Jason emerged as the ultimate winner, not by his look, but his cooking skills. Since then, he became a familiar face in Malaysia. Did you recognize Jason shopping at Mid Valley lately? In order for us to understand more about him, below are some of the his personal details: Full Name            : Cha Kian Heng Age                      : 34 Hometown           : Ipoh, Perak Status                  : Married Hobby                  : Collecting Thai Amulets Favourite Foods : Italian Pizza with many many cheese Favourite Sports : Badminton Favourite Sportsman : Fernando Torres (football player of Spain and Chelsea currently) The Interview: Q: What makes you decided to join the 8TV's 2011 Hot Ch...
Read more

Career Lessons from Breaking Bad

Image
AMC's Breaking Bad ended with a bang last Sunday, leaving viewers generally content and definitely shell shocked. Though the ride is over, we can finally look back at the series and reflect on how we can learn from both Heisenberg's victories and mistakes. How can a meth kingpin help you and your future careers? Here are some takeaways : 1. Be hard to replace   : Find a specific skill set and make sure you are good enough that nobody can quickly take your place. Whether it be modeling, analysis, writing, communication, or even a certain product with a 99.1% purity, having a specific niche or strength can ensure job security. Just try not to kill fellow associates to eliminate competition. 2. Associate with the right people : If you are the smartest person in the room, you're in the wrong room. Surround yourself with people who you believe can bring out the best in you. Doing business with a high school dropout and drug addict will certainly lead to complications in the fut...
Read more

Things We Now Know

The poor are losing ground in the new Obama world.  The facts are showing up even in the halls of collectivist extremes like the New York Times.  The rich are getting richer and poor are being locked in place.  Big government is throttling the economy and the hopes and dreams of lower and middle class Americans. Today's Wall Street Journal's article by Simon Constable lays out some of the simple and obvious facts of the Obama era: "The richest 20% of households account for 38% of spending, according to government data for 2011, the latest available.  Compare that with 2003 when the top earners spent 26% of the total."  The article goes on to say..."it could get even worse."  It will. Who really benefits when the regulators strangle the banks?  Do banks really need to get much more conservative in their lending practices?  Why does the government know best?  How far can you stretch the FDIC guarantees before American banking is simply a subsid...
Read more