1. Introduction
The purpose of this case study is to explore the phenomenon of collaborative governance in the national minimum wage fixing mechanism in the context of Malaysia. It aims to gain in- depth knowledge and description within real life setting. This study will help to understand the process and conditions involving participation and decision making among stakeholders. This study does not aim to evaluate the outcome of National Wages Consultative Council (NWCC) rather to explore the conditions in which stakeholders engage with each other, the actual governance structure and the process involved to arriving at a decision. The study site is likely to be limited to individuals involved in the wage setting platform, the NWCC under the Ministry of Human Resources.
International Journal of Business and Economy (IJBEC) eISSN: 2682-8359 [Vol. 3 No. 1 March 2021]
Journal website: http://myjms.mohe.gov.my/index.php/ijbec
COLLABORATIVE GOVERNANCE IN CONSULTATIVE MANAGEMENT OF MINIMUM WAGE FIXING
MECHANISM IN MALAYSIA
Grace Dairiam1*, Ida Md. Yasin2 and Devika Nadarajah3
1 2 3 Putra Business School, University Putra Malaysia, Serdang, MALAYSIA
*Corresponding author: grace.phd_mgt18@grad.putrabs.edu.my
Article Information:
Article history:
Received date : 31 January 2021 Revised date : 23 February 2021 Accepted date : 27 February 2021 Published date : 2 March 2021
To cite this document:
Dairiam, G., Md. Yasin, I., &
Nadarajah, D. (2021).
COLLABORATIVE GOVERNANCE IN CONSULTATIVE
MANAGEMENT OF MINIMUM WAGE FIXING MECHANISM IN MALAYSIA. International Journal Of Business And Economy, 3(1), 21-31.
Abstract: This study aims to explore the use collaborative governance model in the national minimum wages fixing mechanism in Malaysia. Public sector management is rapidly evolving and collaborative governance has gained popularity for effective and efficient management of public policy, goods and services towards attaining public value. However, some challenges related to leadership ability, decision making authority and shareholder variations continue to emerge and need further study.
Keywords: Collaborative governance, minimum wage, wage setting, public management, public policy.
2. Literature Review
2.1 Collaborative Governance at Work
Public sector management is rapidly evolving and there is widespread interest in the field of collaborative governance among scholars (Sun, 2017). Ansell & Gash (2018) further points that collaborative governance is gaining popularity as a policy instrument and can be viewed as collaborative platforms for organizations or programs.
However, lack of empirical evidence raises concerns on the performance of collaborative governance compared to traditional top down governance by the public management (Vodden, 2015), where challenges related to leadership ability, decision making authority, stakeholder variations continue to emerge. To accomplish this it is crucial to seek a better governance mechanism which are holistic and comprehensive (Amsler & Leary, 2017). Though according to Eldridge et al. (2018) various political and cultural factors such as resolving power tensions, overcoming historical influence and satisfying complex leadership requirements need to be addressed for meaningful outcome of collaborative governance.
Collaborative governance intends to bring stakeholders and public institutions in a related setting to engage and arrive at a consensus-oriented decision making and work towards collaboration that can co-created value (Ansell & Gash, 2008; Doberstein, 2016; Nabatchi, Sancino, & Sicilia, 2017). It has been widely researched in various policy areas such as economic development, municipal budgeting, public health, human services, environmental protection and restoration, and transportation and land use (Scott & Thomas, 2017).
2.2 International Labour Organisation and Minimum Wages
The International Labour Organisation (ILO) defines minimum wages as “the minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract”. The main objective of minimum wage is to protect workers against unduly low pay. Historically, New Zealand was the first country to implement minimum wage in 1894, followed by the Australian state of Victoria in 1896 and the United Kingdom in 1909.
Minimum wages was introduced to a few categories of workers and intends to protect workers whom are deemed vulnerable (ILO, 2016, p.7).
The evolution of minimum wage setting can be reflected from the evolution of minimum wages convention under the ILO which are Minimum Wage Fixing Machinery Convention, 1928 (No.
26) and Minimum Wage Fixing Convention, 1970 (No. 131). One major contrasting element in these conventions is the introduction of the principle of full consultation with social partners, in the later convention. ILO report on minimum wage systems highlighted that there are three main methods applied in minimum wage setting mechanism: 1) minimum wage fixed by the public authorities without consultation with the social partners; 2) minimum wage fixed by public authorities after consultation with the social partners; and 3) minimum wage fixed on a tripartite basis (ILO, 2014, p.50). Boeri (2012) pointed two common methods of fixing national minimum wages, through: 1) government legislations, or, 2) collective bargaining and found that wages set through government legislations are lower that the wage floor set through collective bargaining.
The ILO sets the basic principles required for minimum wage fixing through its Minimum Wage Fixing Convention 1970 (No. 131). Article 4 (3) of the said convention points that the minimum wage fixing machinery shall include direct participation of a) representatives of organisations of employers and workers concerned, and b) competent authority or the government in accordance with national law and practice (ILO, 2016, p. 4). Countries that ratified Convention No. 131 practiced different regimes in implementing the said Convention, mainly with regards to involvement of social partners. Guardiancich & Mattia (2018) identified four regimes in relations to involvement of social partners: unilateralism, collective bargaining, social dialogue and other mechanism.
Four major factors are seen to play significant role in moulding the wage-setting changes:
economic environment, linkages between public policy and political will to balance wages across industry, institutional arrangement for collective bargaining and approaches taken by employers and trade unions (Marginson & Welz, 2015). On another note Popescu et al. (2017) pointed among the challenges faced in minimum wage setting will be determining the parties involved and its process, the rate that is to be decided and deciding the criteria to be used for revision. Setting the right wages is crucial. Appropriate rate of minimum wage will bring minimum effects, either negative or positive (Belman & Wolfson, 2014). Thus, efficient management of minimum wages may be the right tool for alleviating poverty and inequality (ILO, 2017a, pp. 24-29).
2.3 Malaysia and its Minimum Wages Evolution
Malaysia embarked into minimum wage initiative upon announcement by the Prime Minister during the budget speech in 2010. The policy is designed to ensure employees can meet their basic needs and create the conditions necessary for industries to move up their value chain (Seman, 2014). It is part of the New Economic Model (NEM) to ensure inclusiveness by transforming the economy from a middle-income to a high-income economy by the year 2020.
The objectives of minimum wage implementation in 2012 are (1) to ensure the basic needs of workers and their families can be met; (2) to provide adequate social security to workers; (3) to encourage employers to move up the value chain by increasing the productivity of their employees through the use of technology and other innovations; and (4) to reduce Malaysia’s dependence on unskilled foreign workers (Ghee, Mooi, Lee, & Sang, 2015, p.314).
Wages in Malaysia have been largely based on market forces as those set through collective bargaining. Initially, minimum wages were implemented through the Wages Councils Act 1947 (Act 195). Under this Act, wages councils were established to fix legal minimum wages for vulnerable and low-paid workers in certain categories of occupation or sectors as recommended by Commissions of inquiry (COIs). The Wages Councils Act’s jurisdiction was limited to few sub-sectors and lacked the framework to effectively enforce compliance and continuously review the minimum wages rates.
In order to set a national minimum wage, to overcome market inefficiencies and the need to ensure inclusiveness, the National Wages Consultative Council Act 2011 (Act 732) was passed.
The introduction of Act 732 established the NWCC or the Council, based on the tripartite principle or tripartism, comprising the Government, workers and employers. It acts as an independent body with the power conferred by the Act on matters concerning minimum wages as stated under Section 4 (1) (NWCC, 2012). This Council meets the requirement of Article 4 (3) of Minimum Wage Fixing Convention 1970 (No. 131).
Minimum wages are basic wages excluding allowances (e.g., accommodations, transportation) and the value of non-monetary benefits (e.g., healthcare insurance) (T. Shanmugam, 2016).
The minimum wage is applicable to all Malaysian and non-Malaysian employees, except domestic workers such as domestic helpers and gardeners (Central Bank of Malaysia, 2013).
The first minimum wage policy under the Minimum Wages Order 2012 set monthly base salary at a minimum of RM900 (USD215) for Peninsular Malaysia and RM800 (USD191) for other parts of Malaysia (MWO, 2012). In 2016, the Minimum Wage Order 2012 was revoked and replaced with a new order, Minimum Wage Order 2016 with a revised minimum wage of RM1,000 per month (USD236) for Peninsular Malaysia and RM920 (USD217) for other parts of Malaysia (MWO, 2016). Through MWO (2018), the minimum wages were standardized throughout the country at RM1100 effective 1st January 2019. Later in January 2020, the government announced a controversial minimum wage at RM1200 encompassing 56 cities and municipal council areas. Thus far, Rasiah, Crinis, & Lee (2014) found that the previous minimum wages brought little support for wage improvement especially in the manufacturing sector and some workers were better off prior to minimum wage introduction. Malaysia Employers Federation (MEF) alternative have been continuously urging the government to reconsider minimum wage implementation as profits are declining and workforce is being restructured (Aziah, Kadir, Hussin, & Hashim, 2016).
Minimum wage setting has also been a great challenge globally where confrontation was unavoidable with protests by workers if the decided wage rate are unacceptable and the extent of workers’ and employers’ representation in the wage fixing machinery are unsatisfactory (Brown, 2009; Green & Harrison, 2010; Muravyev & Oshchepkov, 2016).
3. Problem Statement
One significant development in the field of public governance pointed by Crosby et al., (2016) and Torfing & Triantafillou (2013) is that the new paradigm for public governance can no longer be rules-based and procedural, rather, much emphasis must be given for collaboration and interdependency with various stakeholders to be a progressive nation. In relevance to this, there has been significant development in collaborative governance as a new public management mechanism to enhance effectiveness and efficiency in the overall public management.
According to Ansell & Gash (2008), collaborative governance brings public and private stakeholders together in collective forums for consensus-oriented decision making through conflict resolution and trust building. Sun (2017) suggested that the study on collaborative governance can be explored from the aspects of the Collaborative Governance Theory (CGT) itself, the relationship between the collaborative governance and other elements or the specific application of collaborative governance theory. On another study, Ran & Qi (2017, p. 12) concluded that there is a broad scope to be explored related to power sharing rather than finding the balance. They proposed for future studies, either conceptual or empirical, can investigate more contingencies or the relationship between contingency factors to develop a comprehensive framework to identify the factors that influence the connection between power sharing and effectiveness of collaborative governance.
Ansell & Gash (2008, p. 544) outlined six important criteria of collaborative governance: (1) the forum is initiated by public agencies or institutions, (2) participants in the forum include non-state actors, (3) participants engage directly in decision making and are not merely
“consulted” by public agencies, (4) the forum is formally organized and meets collectively, (5) the forum aims to make decisions by consensus (even if consensus is not achieved in practice), and (6) the focus of collaboration is on public policy or public management.
It is a challenge to find the one size fits all design for collaboration. Amsler & Leary (2017) stressed more elaborate work be conducted to examine further the different collaboration design systems to gain clarity on the unit of analysis and roles played when collaboration occurs. It will be useful in identifying the design features and methods most useful for successful collaboration. It was further pointed by Emerson (2018) that a more systematic research on collaborative governance is required to fill the gap in evidence based research, however, in the field of public health. Besides that Prehoda, Winkler, & Schelly (2019) in their research found that it is important to give attention to the decision-making authority, types of remuneration provided and diversity of participation in relevance to collaborative governance for improvement. In addition, Ansell & Gash (2018, p. 15) suggested that collaborative governance in the form of collaborative platforms can be further understood through case studies which could reveal the strengths and weakness of collaborative platforms as a governance strategy. This study could encompass challenges of collaborative governance to maintain the desired outputs and outcome in the evolvable nature, recognizing and prioritizing opportunities, the right balance between imposing design rules and strategies to remain relevant.
Malaysia is facing its own challenges in arriving at an optimal design in the implementation of minimum wages (Ibrahim & Said, 2015). The latest minimum wage covering 56 cities and municipal councils effective February 1, 2020 caused an uproar from manufacturers and employers, mainly on deciding the cities and towns to be affected the new rate (Rahim, 2020).
The Malaysia Employers Federation points that to make things worse, the government sidestep the NWCC to arrive at this decision and fails to meet the understanding to share 50 percent of the increased cost due to raised minimum wages. Small and Medium Enterprises Association of Malaysia accords that even when salaries increased by 10 to 20 percent in 2019, productivity remained constant. It is estimated that average prices of goods and services may increase by 10 to 20 percent due to increase in minimum wages (Tang, 2020),
During the minimum wage setting in Malaysia, extensive consultations were held throughout the country with various stakeholders, mainly the employers’ associations and trade unions of workers with regards to the process and the expected minimum wage. The revised rate in 2018 to RM1,050 caused spark and the unions opine that the Ministry of Human Resources and the NWCC could not urge the government to set a minimum wage that was reasonable and acceptable to millions of workers in the country, especially workers who are not provided with the right to collective bargaining and unionization (Palanisamy, 2018). It is important to note that tripartism was an important structure in the wage fixing mechanism and yet caused dissatisfaction among members.
The Budget Speech 2019 announced further that the minimum wage rate will be raised to RM1100 which caused further disappointments to Malaysia Trades Union Congress (MTUC).
This rate was way below the National Wage Legislative Technical Committee’s recommendation of RM1,500 (Perimbanavagam, 2018). As expected, the employers were unhappy with the increased minimum wage. Malaysia Employers Federation (MEF) criticized that the increase is sudden and lacks consistency in government decision making, which could lead to erosion of investors’ confidence (Aris, 2018). Further, Malaysian employers were also dissatisfied with the recent announcement of minimum wage during the Budget Speech 2020 which was decided without engagement with stakeholders and the involvement of NWCC (Lai
& Zainal, 2019). In addition, Bell & Machin (2018); and Draca, Machin, & Reenen (2011) found that announcements on wages changes had a significant effect on reduction of expected profits of publicly listed establishments.
Balancing up the divergent views of the employers and unions has been always a challenge.
Both parties have conflicting views and tend to maintain their respective opinions.
Nevertheless, NWCC and the Government carefully evaluate and discuss the interest of both parties before a decision is made (MOHR, 2012). In addition, there is always debate between living wage and minimum wage. ILO (2014) stated that living wage differ from a minimum wage in several aspects. First a living wage is not a statutory requirement and consist of minimum level of remuneration with minimum acceptable standard of living. Thus, making living wage rates higher that minimum wage rate. Further, determination of living wage depends primarily on cost of living compared to minimum wage that may consider additional factors such as employment and job creation (Central Bank of Malaysia, 2017).
The debate between the employers and unions is ongoing ever since the implementation of minimum wages in Malaysia despite having both representatives in the NWCC. It is a challenge to arrive at a balanced and accepted minimum wage rate as both representatives has differing aim and interests to be met. Arriving at an agreement collaboratively will benefit all especially the workers and achieving the national development agenda.
The major thrust of this study is to fill the gaps of knowledge in the perspective of collaborative governance and minimum wage fixing mechanism. This study intends to apply the framework of collaborative governance decision-making and examine the consultative management of minimum wages. In addition, previous studies on minimum wage have primarily concentrated on econometrics and quantitative research methods based on measurable data (Aaronson, French, Sorkin, & To, 2018; Autor, Manning, & Smith, 2016; Bell & Machin, 2018).
4. Significance of the Study 4.1 Body of Knowledge
Collaborative governance has become an important research area in the public management. It has been widely used in natural geography, environment and humanities that looks into collaborate planning and decision making, and less on application. This study aims to advance the body of knowledge on the mechanism of minimum wage fixing and collaborative governance. It intends to explore the specific application of Collaborative Governance Theory in the field of labour administration, specifically on the consultative minimum wages fixing in Malaysia. The aim is to evaluate and examine this theory through NWCC which is formed through collaborative governance comprising employers, unions, government and experts. This may further advance knowledge related to the significant role of public administration which has to be balanced for effective governance through cooperation with all stakeholders (Nabatchi et al., 2017; Scott & Thomas, 2017b; Tomo, Hinna, Mangia, & Nito, 2018).
In addition, this study extends the usage of collaborative governance as a proactive policy instrument that can be extended from one local contact to another especially through the concept of collaborative platforms which has a relatively stable organizational framework for the public sector to cope with demands and changes (Ansell & Gash, 2018).
4.2 Practical Contribution
This study aims to assist policy makers to bring improvement in the management of minimum wages. The implementation of minimum wage was to advance Malaysia to meet its development agenda by increasing the productivity of the employees through advanced technology and value creation. Policy development and implementation is crucial for the government. Public sectors have become part of a complex system where engagement with social partners, civil society or even the public at large, is unavoidable.
This study intends to focus on the consultative management of minimum wage fixing and provide suggestions for improved and balanced management of minimum wage. For stakeholders, especially in the NWCC, it may provide a guide on the importance on collaborative governance and the critical role to be played by all parties for the national transformation agenda and contribute further to improved productivity of the workforce and remain competitive and relevant in the evolving business environment. Specifically, both employers and unions representative may be able to see the benefits of collaborative governance in policy making and the roles, responsibilities and decision making to be undertaken by them for the benefit of the workers. In summary, the study aims to address gaps identified in the collaborative governance literature and contribute to practical applications specifically to the management of minimum wage fixing in Malaysia.
4.3 Contextual contribution
From the contextual point, studies on minimum wages thus far has focused primarily on effects of minimum wage, implementation of the related law, impact of minimum wages across ethnic groups, impact of minimum wages on compensation, work behaviour and quality of life and industrial implications (Ghee et al., 2015; Hidayah, Ahmat, Arendt, & Russell, 2019; Hwa et al., 2019; Ibrahim & Said, 2015; Joo-ee, 2016; Marshita & Mahyut, 2013; Rasiah et al., 2014;
Saari, Abdul, Hassan, & Shah, 2016). Malaysia introduced minimum wages in 2012 and can be considered to be at the early stage of implementation with various challenges and struggles faced especially by NWCC. Therefore, this study is hoped to give new perspectives to the studies related to minimum wages from the wage setting mechanism in Malaysia.
5. Conclusion
The study will explore collaborative governance in the national minimum wage fixing mechanism in Malaysia. The aim is to provide an in-depth understanding on collaborative governance in minimum wage fixing from the perspectives of government, employers and trade unions. It will focus on the perception, process and way forward regarding this approach in wage fixing and the inquiry will be framed within the research questions identified earlier. The study scope will mainly focus to the National Wages Consultative Council under the Ministry of Human Resources to meet the purpose of this study. Nevertheless, opinions and views from employers and trade unions representative who are non-members to this council will also be sought in order to provide a holistic perspective to this study.
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