It has been discussed that Malaysia should implement the minimum wage which would help the neighborhood workers to the sectors which were being hit by the government's policy to significantly decrease the intake of foreign workers. 'A minimum wage council comprised of government and private sector representative needs to be create work out the minimum wage structure' said Dr. Chua Soi Lek, former Minister of Health Malaysia. Indeed, what's minimum wage about? Minimum wage is the theory that the minimum amount of wage that must be paid to the labor market of an country, generally on hourly, daily or monthly.
Based on the diagram which mentioned earlier, the market achieves the equilibrium at point Ґ with price PҐ which is the amount of wages which have been agreed to be paid to the neighborhood or foreign workers and meet the equilibrium quantity demanded of employees which is at point QҐ. However, because the notion of minimum wage is being introduced, therefore, the market must have considered the purchase price floor policy, which is Mw that prices should be set at any point as long as it is above the equilibrium price.
Nevertheless, following the minimum wage has imposed, there are a few changes on the number demanded of both local and foreign workers. To begin the, surpluses would occur once minimum wage imposed. An obvious transform which is the foreign staff quantity demanded has fall rapidly which is the number from point QT - QL2, this is also the surplus area for foreign workers. On the other hand, the local staff do have surplus as well, but it isn't as wide as foreign ones where in fact the surplus occur between point QL1 to QҐ. This demonstrates if minimum wage is implemented, the demands for employees remain unchanged, but increase of local personnel supplied and reduced amount of foreign personnel hired in the industries would have happened.
This drama can be explained through few importance issues. First point would be predicated on the hypothesis that has been made which is majority of the foreign workers, exclude those who contribute professional services like doctors, lawyers, lecturers, managers or accountants, are from Indonesia or Bangladesh mainly contribute in construction jobs and they're unskilled. Since the very least wage that must be paid to workers, industries and companies in Malaysia will tend to hire local staff due to their capability and ability is much privileged compared to foreign ones. This will likely result an monetary effect where increased in local staff supplied and decreased in foreign employees supplied. Additionally, seeing as reduced amount of foreign workers in the market, it will also cause another economic effect which is surplus where supply is more than demand. Clearly is seen, the supply of foreign staff where point ST - SL has indicated surplus occur for foreign workers. Whenever there are surpluses in a single market, this means the way to obtain the market cannot meet the demand in the market. For instance, this foreign and local employees case, both of the employees have surpluses, but it is merely that foreign an example may be greater than local one. The surpluses of these two employees add together, it will create another economical effect called unemployment. The higher the surpluses are, the bigger the unemployment rate on the market.
To implement minimum wage unnecessarily means only create surpluses or unemployment; they have its own benefits as well. Minimum wage reduces poverty. For the reason that since there is a minimum amount that needs to be paid to every worker, therefore, those poor employees could have the opportunity to enjoy higher paid and this will certainly reduce their poverty. Secondly, it also increases productivity. It really is ideal to assume personnel would be motivated by the bigger paid since money is one of the motivations to encourage people to work. Since people are getting higher paid, they will work harder and increase their productivity level. Furthermore, it enhances the inventiveness for the unemployment to accept jobs. This will greater the participation rate of unemployment to seek for jobs due to higher paid. Lastly, it also increases investment. That is due to the confidence that have boosted to investor to get and increase labor productivity because labor is currently costly. If productivity increases, higher return would go to investors.
However, when there are pros, cons surely occur. Minimum wage could cause cost push inflation. This explains businesses and industries now faced more expensive which they will probably pass to consumers. Additionally, more staff would have contributed their forces in black markets as the wages are higher now. For those who are from the lower income earner, minimum wage will not help in a means that because they have to rely on the advantage of minimum wage and this won't increase their income. Therefore, this group of earner won't afflicted by the minimum wage.
In conclusion, Malaysia should implement minimum wage in a way that not due to benefits associated with it which gives several reimbursements to workers whether local or foreign; for the reason that a reasonable and fair income distribution should be practiced. There are plenty of people work 18hours every day and their paid continues to be low because a few of the employers aren't paying for contributions, but spending money on experiences and name recognitions. Injustice occurs too when some personnel who practically under 'security' somehow get fixed paid even they didn't participate much in the labor force activities, not forgetting higher paid. With the help of minimum wage, every worker get the same minimum amount of wage, no overstated nor understated to be able to practice a fair income distribution in labor market.
The Gross Domestic Product (GPD) is a tool of measurement to measure one country's aggregate monetary output. GDP can be calculated by 3 ways which all of them should produce the same result. Those ways will be the product or the output approach, the income approach and the expenditure approach. Comparing with those three ways of determining GPD, the product approach is the most direct way which it sums all the outputs of each class or degree of enterprise to reach at the total. The expenditure approach, however works on the ideals that of the product should be purchased by consumers, which means total products me be equal to the full total spending in purchasing items. The income approach is means that the incomes of producers must be equal to the value of these product; GDP can be calculated by adding all the incomes.
GDP is the easiest way to measure monetary growth by comparing the GDP from year to year because the GDP figure represents the exterior of final goods and services stated in a year. Unfortunately, GDP might not exactly be the perfect tool to measure economic growth as in inflation and population growth is being taken into account.
Another reason why GDP is wii measurement in measuring monetary growth and quality lifestyle of any country is the fact that real GDP per capita does not consider the distribution of wealth. When real GDP per capita increases, it is unlikely that everyone is made equally better off. The benefits associated with growth are unlikely to be distributed evenly throughout. It is because growth is not evenly distributed. Some sectors may growth faster than others. Sectors which have elastic demand will grow faster than sectors that contain inelastic of demand. For instance, demand for output from the manufacturing sector will grow faster. As people's income increases, their demand for manufacturing goods will increase due to raised purchasing power. Alternatively, agriculture goods sectors will grow slower because now people will have higher purchasing power and folks now could be affordable for better quality goods.
Additional disadvantage is the fact GDP data only gauge the value of goods and services which can be exchanged in the market. That is meant that non-market transactions such as housework performed by housewives, that happen to be unpriced yet contribute to economic welfare are not included. Housework is considered as productive activities as well, but those activities didn't interact with any priced and traded on the market, they are not included in the GDP because they are not final goods or services. By this, GDP will underestimate the value of economical growth welfare on the market which would result imbalanced in the calculated value.
Furthermore, GDP will not recognize the existence of black market. Black market means that activities or transactions are being done illegally or does not fulfill the dependence on policies. Since GDP aren't taking black market part into its account, it would possibly affect an underestimate GDP per capital for the reason that particular country. The key reason why black market exist it is merely because they neglected to cope with higher taxes, more expensive of production and complex regulations. Therefore, the government is powerless to track what exactly are the contributions of black market contributes to the country and therefore, underestimated GDP per capita would occur.
Additionally, environment issues and crime act is not suppose to be counted in into GDP. The standard of living cannot fully measure by GDP because of the crime acts and environment issues. A country with high per capital will not necessarily mean people are living better or satisfied. Standard of living is something that is wide broad and it is not easy to ascertain just using GDP itself; it also needs to consider several perspectives for example, environment issues, crime acts, discrimination and another political conflicts that happen in one country. This is seen high per capital income country like United State is also having pollution, crime rate, discrimination and also political conflicts within the united states. This demonstrates GDP is not a great tool to measure standard living.
Lastly, GDP provides no information about changes in socio-economic conditions. Socio-economic conditions include nutrition levels, pollution levels, the option of housing, the provision of education, medical services or freedom of speech. GDP is unable to give home elevators these conditions that could possibly affect the economic welfare. Since GDP struggles to classify about socio-economic, it might be vague to calculate the economy's output performance and quality lifestyle. Additionally, because of the weaknesses of GDP as a measurement of economical welfare, a number of other measures could be applied as well for example, GPI (THE ORIGINAL Progress Indicator), HDI (The Human Development Index) and Index of Social health.
In conclusion, GDP is not really a perfect measurement to measure one country's economy's output performance nor the typical living since it provides many negative sided for example, inflation and population growth are being taken into account, will not include non-market activities, struggling to track black market, will not consider environment and crime rate and also neglect to classify socio-economic condition. However, economists haven't any another alternatives but to adapt GDP as the tool to measure standard of living since it is the only measurement that allows one country to calculate their economic performance and standard of living.