Summary

The article “Refashion Job, Pay Higher Wages”, written by Liew Chin Tong at the New

Straits Times on March 11, 2019 first described the overreliance of Malaysian employer towards

cheap, unskilled foreign works that lead towards the low pay rate experienced by the local middle-

class citizen and the inefficiency of some of the job that was filled by these foreign workers. The

author then describes the advantage of paying a higher salary to the middle-class worker by the

increasing the ability for these types of worker to own property. The author claimed that the higher

the wages, the higher the ability for the middle-class workers to make loan and thus, owning a

house. This step will also, according to the author, reduce the surpluses of housing caused by high

selling price, overbuilding and inability for the average worker to pay for those houses

The author also pointed out that the overreliance of foreign workers will cause harm

towards the economy in a sense that the wages that these workers obtained will be funneled back

to their home country and this move will weakened the value of Malaysian Ringgit even further.

By redirecting the job to the locals instead, the author claimed that the Ringgit will be strengthen

as the outflow is controlled and making imports more affordable.

The author then described further advantages of paying higher salary to the local middle-

income workforce. By increasing their wages, they will have a higher disposable income on their

hand and with this, their consumption will increase due to their increased ability to spend. The

author also argued that on the long run, this step will be more beneficial to everybody because it

decreases the economy’s reliance on the debt-fueled economic growth, which the author claimed

is not sustainable. The author gives the example on how China artificially increase the wages of

their workers by working with their influential firms to increase their pay to their workers, in hopes

that other firms will followed suit and according to the author, this method had worked by looking
at the influx of Chinese investors coming to Malaysia to invest and the sheer number of middle

class citizen created due to the method.

The author then argued that because of a huge pool of unskilled foreign workers in

Malaysia, we were unable to compete with the likes of Taiwan and South Korea due to the lack of

skilled, efficient worker. He then brings forth the point on job refashioning. He argued that most

of the job created is ineffective on economy generation. The author then stated that Malaysia hires

around 200,000 bodyguards and most of these bodyguards are foreigners and ineffective. The

author then pointed out that through automation, these inefficiencies can be eliminated or reduced

greatly. The author argues that a job that previously requires 3 to 5 foreign, unskilled workers to

be executed with a pay of RM 2000 each can be reduced to just one operator with a pay of RM

6000 by the automation of the production of service. This, according to the author, increased

productivity and efficiency, thus significantly increase the economic growth of Malaysia.

Analysis

This article focuses greatly on the labor market, monetary market and the macroeconomic

model. From the article, there are few points regarding on what happened if wages and efficiency

we to be increase that can be analyzed through the models that we have learnt. These points are as

follows:

1. Ability to apply for loans

2. Increase in consumption

3. Reduces the surplus of housing

4. Increase productivity of workers

Before anything else, let us see what the general effect is of artificially increasing the wages

level to the labor market. To analyze the effect, we need to assume that the price and wages in this
economy are fully flexible and there is a perfect information flow regarding the changes in the

market. Now, moving on to the analysis:

𝑁1𝑆 NS

W1
Wo

ND 𝑁1𝐷
N
No

Figure 1 Graph of labor market

It’s important to note that in this model, we consider that the term wage used here is

referring to nominal wage and as such does not impact any real factor whatsoever. The artificial

increase of the level of wage from WO to W1 will cause several movements in the curve. As wage

is a form of incentives to worker, higher wages will cause productivity to increase, ceteris peribus.

Since the demand of labor, denotated as ND, depends on the marginal productivity of labor, MPL,

the increase in productivity will cause MPL to increase and in turn, increases labor demand. In the

graph, this is translated into the shifting of the ND curve to the right to 𝑁1𝐷 . Supposedly, this

scenario will cause the employment level, denotated by N, will increase. However, let’s assume
that the increase in wages also increased the price level in the market. As it is comparatively more

expensive to buy a bundle of goods in the present as compared to the past, workers will become

demotivated to work. This will lower the labor supply, denotated by NS, and it is translated in the

graph by the shifting of NS to the left to 𝑁1𝑆 . Assuming that the magnitude of change for both ND

and NS are the same, the market will shift right back to the previous employment level, denotated

by NO, but this time, the employees will enjoy a higher nominal wage compared to the past.

Now let’s move on to the analysis of our first point, which is the impact of higher wages

to the money market and the economy in general. In the article, the author mentioned that paying

workers higher wages will increase their ability to apply for loans to own property. The increased

in ability for worker to apply for loans will affect the economy in several ways. Let us proceed to

the effect of this matter to the loanable funds market.

S = S(r)

r1

ro

Do = I(r) D1 = I(r)
S+I+G
So+Io S0+I1

Figure 2 Graph of loanable funds market

 As more people can take up loans to finance their house purchase, the demand of houses

will increase. This signals the developer that the housing market in this economy is on the rise,

enticing them to enter the market. For them to develop the land, they will need to borrow money

form the bank and this will increase the demand for loanable funds, denotated by D = I(r), ceteris

peribus, assuming all the loanable funds in the market are used for investment purposes. This is

represented on the graph by the shifting of the D = I(r) from D0 to D1. The shifting of the demand

for loanable funds will cause interest rates, denotated by r, to hike up from r0 to r1. The increase in

investment will also contribute to the increase in productivity. The effect of this phenomenon is as

follows:

Y
Y = f (K1, N)
Y1

Y = f (K0, N)
Y0

N
N0

Figure 3 Graph of productivity function

 To increase productivity, companies will often invest in capital improvement (i.e advance

machinery, increase in production machine) rather than increasing the number of labors as the

additional labor is added, there will come a point where an addition of one more labor will be

resulted in the decrease in labor productivity. Capital improvement will lead to an increase of

output and since the level of output is linked to the level of productivity, this will increase the

marginal productivity of labor for the nation. This resulted in the non-parallel shift of the

production function curve, leading to more output with the same number of workers in the labor

pool. The higher

As the level of autonomous investment increases, this also influence the goods market as an

autonomous change of investment is a determinant of the goods market. The effect of an increase

in investment in the goods market is as follows:

r
LM0

r2

r1

I(r)1 I(r)0 IS0 IS1

I y
I2 I1 y1 y2

S1

S2
S(y)
45o S

Figure 3 IS-LM Curve

As we can observe through the market of loanable funds, the increase in investment leads to an

increase in interest rates, ceteris peribus. The increase in interest rates entices the public to save

their money in the bank since high interest rates means higher return on their savings in the present

compared to the past. Higher investment also contributes to a higher productivity level