NST Leader: Artful compromise on wages and inflation

A GOVERNMENT-MANDATED minimum wage policy often puts the government on the horns of a dilemma: balancing pressures from workers demanding better wages to keep pace with inflation with the ability of employers to keep up with a wage-increase spiral.

The government has now come up with an artful compromise. Entrepreneur and Cooperatives Development Minister Steven Sim said the cabinet has agreed to a temporary exemption from any proposed minimum wage increase for micro, small and medium enterprises (MSMEs).

This is a pragmatic acknowledgement that a blanket increase will impact businesses differently. With MSMEs accounting for 39.7 per cent of gross domestic product and nearly 1.3 million enterprises, most of them micro businesses, their ability to absorb another increase in labour costs cannot be taken for granted.

However, the exemption must be viewed as a stop-gap breathing space, not a permanent reprieve.

Over the longer term, it will only disadvantage MSMEs when they face difficulty recruiting workers who will naturally opt to work for employers offering the new minimum wage.

It is therefore incumbent on both the government and businesses to ensure enterprises work on real productivity gains. Workers undoubtedly deserve better wages, but a policy must also recognise the realities confronting smaller employers.

Thus, the government's Progressive Wage Policy, where wage subsidy support for workers in MSMEs is linked to clear improvements in productivity levels, may be a justifiable intervention.

In welcoming the government's support, the SME Association of Malaysia president Dr Chin Chee Seong had hinted at other capacity-building initiatives, such as further investments in productivity improvements, digitisation and staff training.

The government and related agencies need to work with MSMEs on longer-term measures to help them stay productive enough to be able to pay higher wages on a sustained basis.

The government will also do well to keep an eye out for businesses operated by foreigners, many of whom enter the country as tourists, taking advantage of our no-visa entry requirements.

Reports of how these businesses, primarily in the service industry, are directly competing with and undercutting our MSMEs are growing, and if these businesses continue to grow unchecked, efforts by the government to assist our MSMEs may prove futile.

It is an economic axiom that government-mandated business breaks such as wage subsidies are justified in the short term, but enterprises cannot rely on such protectionist measures forever, especially in today's highly globalised business environment.

All must recognise that government interventions are far from ideal in a free-market business environment. Businesses, for their own long-term viability and sustainability, must ultimately find ways to thrive on their own steam.

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