Question

The Government had implemented minimum wage of RM1,200.00 in 57 cities and towns effective 1 January 2020.

1. Describe how the new wage will benefit employees in the urban areas.
2. Discuss the consequences to the economy of country.

Answer 1

a) Firstly we must discuss the pros of minimum wage setting . Setting a minimum wage and updating it frequently helps families in urban areas to keep up with inflation . In urban areas employees stay with company longer when the wage rises which reduces hiring and turnover costs . Employees in urban areas can afford various facilities like fast transport , good nutritious food etc which further increases their productivity and thus aids in economic growth . When workers earn higher wages, they rely less on governmental “safety net” programs and "welfare programs " . Most importantly urban area faces ,maximum inflation or has higher cost of living than rural areas . Thus a new higher wage helps to maintain a standard of life for employees in urban areas . These are the benefits .

b) Increased wage increases spending and thus consumption demand in the economy . This leads to business expansion and job creation . Higher wage rate leads to higher income tax revenue or lower government budget deficit . Government spending on unemployment benefit falls when business expands . Companies face less turnover or loss of employees due to higher wages . So these are the factors which show that minimum wage has a positive effect on economic growth .

On the other hand , companies on a low budget are unable to pay such a wage and usually lay off workers . Companies try to benefit more by raising prices of products in order to afford minimum wage . Outsourcing of work to lower wage countries rises . Companies stop new hiring . So these factors directly contribute to unemployment , inflation and slackening of economic growth .

So minimum wage initially has adverse effects on the economy but slowly and in some sectors its benefits can be seen .