In the News: Low Wages Linked to Fewer, Weaker Unions

The Malaysian Insider
BY SHERIDAN MAHAVERA
Published: 4 April 2015

The goods and services tax (GST) which kicked in on April 1 has turned the spotlight once again on the country’s low-wage rut, with economists pointing at the weakening bargaining power of workers, influx of migrant labour and national economic policies as the main causes.

A long-standing problem, experts have said low wages were the result of Malaysia's industrialization policy, which has long focused on the manufacturing sector.  But it also correlates with a steady fall in union membership, in part caused by dependence on foreign labour.

Dr Muhammed Abdul Khalid TMI
pic by Mukhriz Hazim April 4, 2015

In fact, an economist at a recent forum on the welfare of Malaysians, said better bargaining rights for workers, such as through unions, could ensure better wages and benefits. Dr Muhammed Abdul Khalid (pic), who co-authored the United Nations’ Malaysian Human Development Report 2013 (MHDR), said countries with high unionization rates tended to have citizens who were fairly paid.

Union proponents claimed that industrial productivity gains in the past few years have not been matched with a rise in wages, partly because the power of unions to press for them has been diluted by the flood of foreign workers.

Wages lagging behind productivity

A 2012 CIMB paper on Malaysia’s minimum wage quoted a World Bank study which stated that Malaysia’s productivity levels have grown by 6.7% per year over the last 10 years.  But wages, the CIMB report said, only grew 2.6% each year, “suggesting suppression of wages, especially for low-paid workers, and also an inefficient labour market”.  Veteran trade unionist N. Gopal Kishnam said this trend in miniscule wage growth compared with productivity paralleled declining membership in unions. 

In 1992, 11.4% of workers were unionized, according to MHDR. That number now stands at 7%, said Gopal Kishnam, who is secretary-general of the Malaysian Trades Union Congress (MTUC), the country’s umbrella body of private sector unions.  The union’s declining influence in negotiating for raises and benefits from employers also coincides with higher proportions of foreign workers arriving here.  He estimates that in the manufacturing sector, which still makes up for 25% of gross domestic product (GDP), 35% of all workers are foreigners.

“When a union tries to negotiate for better salaries and the company rejects our demands, we can legally initiate industrial action (to disrupt operations).

“What happens is that when we do, the company can rely on its foreign workers to keep things going,” said Gopal Kishnam, who also leads a union that represents workers in the transport vehicles manufacturing industry.  He, however, cautions against making scapegoat out of foreigners as most, if given the choice, would happily join local unions.  “The problem is employers will send foreign workers back to their countries if they do. Since they spend a minimum of RM10,000 to get here, they won’t take the risk.”

Malaysia's industries stuck in a low-value, low-cost and low-wage cycle spurs the import of workers from poorer countries who will accept salaries and working conditions that locals reject.

“Our industrial policy is predicated on foreign workers,” said Universiti Malaya adjunct professor of Economics and Development Studies Tan Sri Kamal Salih.  “Productivity growth in manufacturing is higher than agriculture and services, but it has not translated into higher wages.”

Businesses were able to keep wages low because they were able to rely on cheap foreign labour, Kamal said.

Union-busting

But unionised workers were not necessarily better off, said Gopal Kishnam, as companies often got away with intimidating and even firing employees who were active.

A recent case was KTMB's sacking of top union officials last year for participating in a picket calling for the resignation of KTMB president Datuk Elias Kadir.  The company has reinstated all the union members, except union president Abdul Razak Md Hassan.  Razak was not taken back because he refused to accept KTMB’s conditions, said Gopal Kishnam, one of which included apologising daily for three months on Facebook for his actions.

“Razak had been highlighting safety concerns of the workers and he was punished,” said Gopal Kishnam, explaining why the union staged a picket to call for Elias’s resignation.

Gopal Kishnam said in 2013, 18 members of his own union were separately fired by their employers on grounds that they participated in political activity.  “All they did was pass a memorandum of MTUC resolutions to a politician, which are basically our demands. It was a legal union activity, but they were punished.”

Again, because employers are able to replace lost local workers with cheaper, more pliant foreign labour, they are not motivated to treat employees better.

Returning bargaining power

One way to reverse this trend and raise incomes was to allow workers, foreign or local, to have more bargaining power with employers over wages, said Muhammad.  This includes better protection for foreigners and locals joining unions.

Studies on unionization and wage growth, such as those done by United States think-tank the Economic Policy Institute (EPI), show that unions do improve salaries and benefits.  “Research shows that unionization does not harm economic efficiency but does lead to higher wages, and does more to lift wages of low-and middle-wage workers than of high-wage workers,” said Lawrence Mishel in a January report on EPI’s website.  “Collective bargaining also leads to a larger share of corporate income going to wages rather than profits.”

A 2003 EPI study on unions showed that unions raised wages of unionized workers by roughly 20% and raised compensation, including both wages and benefits, by about 28%.

Muhammed also proposed changing the current minimum wage policy from one that is set on a monthly basis to one that is hourly, like in many advanced economies.   The current policy is RM900 per month for the peninsula and RM800 for Sabah, Sarawak and Labuan.

“The problem with a monthly wage is that a company can say ‘I will pay you RM900 but you have to work 14 hours day’. With an hourly rate it is a lot fairer to the worker.”

Although businesses often argue that wages should be set by “market forces”, Muhammad said policymakers have to step in at a certain point.

“Just like instituting the minimum wage policy in the first place, there must be political will to improve incomes.”