The politics of the minimum wage: Hong Kong, Malaysia… and Singapore?

Warning: Everyone and their grandmother has written about the pros and cons of the minimum wage. That is not the subject of this piece. Irrelevant comments solely about how the minimum wage is the bee’s knees or devil spawn will be deleted.

Why do countries adopt a minimum wage? Surprise, surprise: there are arguments on both sides for the minimum wage. Economists don’t agree. And it’s no wonder. Wage dispersion and unemployment are affected by many factors other than the minimum wage, so the literature on minimum wage will always be inconclusive. In other words, we’ll never be able to say whether the minimum wage, as a general rule, is a good or bad thing. Rather, the best we can do is to find out whether it helped or hurt in a specific instance where a minimum wage was implemented or raised. And before it’s implemented, we can argue all we like but it is next to impossible to model or predict the likely effects. Even in the UK (whose economy is far better studied than Singapore’s), pre-minimum wage fears of job losses have been recognised even by the Conservatives to have been unfounded. So I think if a minimum wage were ever to be implemented in Singapore, the decision would be taken on political grounds, not econometrics. In this piece, I’m not making any judgement on the merits of the minimum wage; instead, I want to focus on the politics of the minimum wage—what makes the introduction of a minimum wage likely or unlikely.

I don’t think it’ll happen in Singapore anytime soon. Here’s why: our labour movement is well-integrated with the government, and the media and political opposition is weak. Having taken care of three possible sources for minimum wage demands, it is difficult to imagine another source for minimum wage demands to emerge and gain political traction. And the progressive wage model which has recently come into effect (albeit only for cleaners) may, instead of leading up to a minimum wage law, defuse demands for the introduction of a minimum wage.

To the best of my knowledge, in the region the minimum wage has been implemented most recently in Hong Kong (legislated 2010, implemented 1 May 2011) and Malaysia (legislated 2012, implemented 1 January 2013). I’ll take each of those cases in turn. (Myanmar also implemented a minimum wage in 2013, but there’s just too little written on it to work on. The UK implemented theirs in 1999, and two good policy analyses for that can be found here and here.)

Hong Kong

Mathew Wong at HKU has an engaging academic paper in the Journal of Contemporary Asia (2014) that tells the story of how Hong Kong’s minimum wage law came about. It appears that public outcry over low-income workers emerged as far back as 2001, when news broke of an old man working as a public restroom cleaner who had to live in the restroom because he couldn’t afford to rent. The wheels of government ground on slowly, and the Labour Advisory Board (a 12-member consultation body with five representatives each from the labour movement and business interests, but with government holding the balance of power with the last two seats) was commissioned in 2004 to provide a report… in 22 months. The Board proposed a voluntary wage-regulating mechanism (the “Wage Protection Movement”), but moral suasion wasn’t enough to get workers the wage levels they wanted, and further shifts in public opinion forced the government to convene a Provisional Minimum Wage Commission and finally introduce minimum wage legislation in 2009. A minimum wage law passed the LegCo in 2010. So far, it seems like a public opinion story.

We do know, however, that Hong Kong business has huge influence over government, and even direct channels of communication with Beijing. It also seems that because the labour movement was divided between pro-democracy and pro-China camps, organised labour was unable to put any significant pressure on the government. So the question remains: how was public opinion able to override the business sector’s influence over the government?

Wong argues this was primarily because the business lobby squandered their political capital. First, the voluntary mechanism, called the “Wage Protection Movement” (Sept 2006 onwards), failed. This showed that business interests were not going to get on board a voluntary scheme. Moreover, in the public debate following the WPM debacle, legislators and public figures representing the business lobby made several statements which hurt their cause. Wong singles out two people in particular. Tommy Cheung caused a public outcry in March 2010 when he suggested a level “below HK$20,” which was unacceptably low to workers. Then there was Yue-kwong Chan, a businessman whose membership on the Provisional Minimum Wage Commission became a focus of dissatisfaction when he warned in mid-2010 that a high minimum wage would force his company (Café de Coral, a large restaurant group) to issue a profit warning. Later in 2010, his company, while raising wages in anticipation of the minimum wage, was found to have changed meal hours to unpaid work (i.e., removing meal breaks). This lowered the effective salaries for some workers. Public pressure culminated in a boycott threat, and his company backed down. With its public image problems, Hong Kong’s Minimum Wage Commission had no choice but to tack pro-labour.

In Wong’s analysis, these missteps—exposing self-serving business interests to a huge public backlash—were collectively the main factor that created space for a weak labour movement to push their interests, and eventually get a minimum wage implemented. It is also almost certain that Hong Kong’s vociferously independent media helped generate the necessary momentum for this public backlash.

Malaysia

Unlike Hong Kong, I haven’t found a good article on why Malaysia passed a minimum wage law, so I’ll be doing a little more footwork on my own. Malaysia’s politics is a little more similar to Singapore’s in some respects—a dominant party (Barisan Nasional, BN), aided by weak media, legislates as a sovereign body with little oversight. At least in political science terms, it’s also a little harder to analyse because soft autocracies simply generate less information. In this specific case, Malaysia implemented the minimum wage as a matter of government policy, rather than through legislation, which means that even less debate and information was generated about the motives behind it. Nevertheless, Malaysia’s political landscape is far more competitive than Singapore’s, and Pakatan Rakyat (PR, the opposition alliance) did win an absolute majority of votes in the 2013 election.

The official story—as told by Bank Negara Malaysia—is that the minimum wage is an attempt to (A) drive wage growth, which has stalled relative to labour productivity growth (2.4% and 5% respectively, annually over the last decade), (B) encourage more people to enter the workforce, (C) provide a small consumption boost to the economy, and (D) encourage firms to take measures to raise productivity. All this is envisaged to help transform Malaysia into a high-income country. Bank Negara Malaysia argues that “strong economic fundamentals” should minimise potential job losses, and it expects that workers will find new employment fairly easily. Setting aside this vagueness, the trouble with BNM’s rationale for the minimum wage (particularly D) is that it seems to put the cart before the horse: generally, if it was up to firms, workers would only get paid better when their productivity justifies it. Malaysia wants to turn this on its head, and make firms pay more so that they work to drive up productivity. It’s unclear whether enough slack in labour utilisation really exists for this strategy to make sense. To me, these sound more like post-hoc rationalisations. So what’s really going on?

To my mind it seems most likely that the minimum wage was introduced for electoral reasons. A general election was due by mid-2013. As Case (2013) argues, Prime Minister Najib struggled all 2012 to build political momentum, against the massive Bersih protests. According to him, these are the measures Najib rolled out: “Bonuses for civil servants, promotions for teachers, cash incentives for nurses, bursaries and book vouchers for students, reductions in toll rates for middle-class motorists, higher subsidies for oil and sugar, a minimum wage for workers, a tire subsidy for taxi drivers, payments for petty traders and plantation settlers, and free bus tickets and “Hari Raya money” (small end-of-Ramadan allowances) for the needy were all unveiled during 2012. At the start of the year, the government also issued its first payments of RM 500 ($165) to low-income households through its 1Malaysia People’s Assistance (BR1M) program, then contemplated a second tranche at year’s end.” Clearly Najib was desperate. As Terence Gomez at UM points out (NYTimes), the minimum wage was expected to benefit rural voters more than urban ones (whose incomes were mainly above the wage floor). One of the certainties in Malaysian politics is that rural votes keep BN in power. Moreover, it bears mentioning that PR had included a minimum wage promise in its election manifesto, and its foundational principles (“Buku Jingga”) as early as 2010, and individual parties in the PR alliance had promised it in the previous election.

The labour movement’s role in this is, as far as I can tell, non-existent. Maimunah (2009) argues that because of Malaysia’s racialised electoral politics, the labour movement lacks natural political allies. Unions are weak, with only 9% of Malaysian workers in unions in 2012. They are also geographically fragmented, tiny, and many are restricted to a single employer (in-house unions). Before the minimum wage level was announced, the Malaysian Trade Unions Congress reportedly lobbied for a minimum wage to set at RM900, while other unions were lobbying for RM1200–1500, but I can’t find any reports that suggest that the MTUC had actively demanded minimum wage implementation before the government actually announced it. My general impression is that the labour movement is a political price-taker.

The lack of available information (particularly on the inner workings of government and the BN) prevents us from coming to any definitive conclusion about why Malaysia introduced the minimum wage. But the timing of the move—a year before an election widely expected to be the most competitive in Malaysia’s history—combined with its electoral salience (the opposition had promised it since the last election) and the lack of other visible explanations (such as the labour movement or public-opinion mobilisation through the media) suggests that electoral politics was the main motivation.

Singapore?

We’ve seen plausible explanations for how Hong Kong and Malaysia got their minimum wage regulations: Hong Kong through public opinion stirred by a number of missteps on the part of business leaders, and egged on by the media; Malaysia through the ruling alliance seeking to fend off electoral competition. Neither of these seem likely to happen in Singapore: the media is ‘responsible’ about public opinion, and the opposition is nowhere near Pakatan’s levels of organisation and support. Mathew Wong (author of the HK article I cited earlier) also argues that Singapore is unlikely to get a minimum wage soon: Singapore’s government has its fingers in too many business pies (so a minimum wage would hurt its own interests); and Singapore’s income inequality has fluctuated and is not as bad as Hong Kong’s.

However, Wong does think that Workfare may constitute, like Hong Kong’s Wage Protection Movement, the first step on a chain of policy creep that ends in minimum wage. I would add that the new “progressive wage model” (PWM for short) is even closer to the Wage Protection Movement. The new PWM posits a ladder of career progression for cleaners, with starting pay at S$1000 a month. Three economists quoted in this ST article (“Is the progressive tiered-wage model a form of ‘minimum wage’?”) say that it is basically a minimum wage under a different name.

But some have pointed out shortcomings in this approach. Most glaringly, other than the floor, the remaining ‘rungs’ on the wage progression ladder are at the discretion of the firm. I see several other problems with the PWM. It appears that the PWM has only been implemented in the cleaning sector. Reportedly, the government has been unsuccessful in extending this framework to cover security guards, which is quite a failing on the part of the government. As the Straits Times has pointed out, this PWM would take a long series of negotiations—sector by sector, firm by firm—before it covered all vulnerable workers.

Moreover, the PWM has so far been implemented through compulsory licensing. There could conceivably be low-wage sectors which are complicated enough that licensing would be otherwise difficult to implement—mechanics, for instance, deal with a wide enough variety of equipment that a licensing authority might have trouble overseeing them. The alternative, voluntary accreditation, is toothless. And enforcing licensing too strictly may lead to informal, under-the-table arrangements that disadvantage workers even more. Government policy should be transparent in the way it connects its means and ends; licensing is an impractical and roundabout means of going about instituting wage protection, when a minimum wage is the obvious way of doing it.

Lastly, assuming the government or the labour movement[1] does indeed want to extend this progressive wage framework, it is terribly unclear why it does not implement a minimum wage as well to (1) act as a stopgap that covers vulnerable workers until the ‘better’ progressive wage framework is negotiated for their sector, and (2) increase its bargaining power when dealing with sectors not yet covered by the framework. Security firms would have a much harder time justifying saying no to the PWM, if they had to pay their workers $1000 whether or not they signed up. Implementing a national minimum wage could also increase the efficiency and speed of PWM implementation.

Setting aside all these criticisms of the progressive wage model, is Mathew Wong’s story about Hong Kong’s voluntary wage framework also applicable here? I’m not sure. He argued that imperfect implementation of the voluntary wage framework led to public dissatisfaction, which then constrained the government’s space for manoeuvre until it was forced to legislate a minimum wage. I think there’re three places in the story where Singapore isn’t like Hong Kong. First, it seems that the relevant commissions were more transparent and their members more prominent in the media, compared to Singapore’s National Wages Council. Media discipline is also likely to prevent damaging cross-messages of the sort seen in Hong Kong. Second, the Singapore government is less friendly to public opinion than Hong Kong’s, and more open to the idea of influencing (or controlling) it. Particularly in a core economic concern of employment and wages, it is likely to pull out all the stops in media messaging to reinforce whatever policy it wants to implement. Lastly, Singapore’s PWM is sector-based. Even if the PWM is perceived to be ungenerous in one sector, workers aren’t going to see this as a class-wide or nation-wide problem. Though this was a feature of Hong Kong’s voluntary system as well (only covering guards and cleaners), it seems that the government there made the mistake of promising to introduce minimum wage legislation if the voluntary framework proved unsatisfactory. And of course, I bet the government’s already studied the HK case in far greater depth than my five-hour effort. In short, Singapore’s government is unlikely to stumble into a minimum wage the way Hong Kong’s did.


I’d welcome evaluation and criticism of the argument above. Please drop me a note below if you need a copy of Mathew Wong’s paper in order to comment—I believe it should come under fair use!

Case, William. 2013. “Malaysia in 2012: A non-election year.” Asian Survey 53(1):134-141.

Maimunah Aminuddin. 2009. “Employment relations in Malaysia: Past, present and future.” New Zealand Journal of Asian Studies 11(1):304-317. http://www.nzasia.org.nz/downloads/NZJAS-June09/22_Maimunah_3.pdf

Wong, Mathew YH. 2014. “The Politics of the Minimum Wage in Hong Kong.” Journal of Contemporary Asia 44(4):735-752. doi: 10.1080/00472336.2014.906641

[1] Given that the head of the labour movement is a minister, the two seem quite interchangeable, and it is not always clear which motives to ascribe to which actor

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