Alex Ooi

Article 1         

Impact of setting minimum wage

            After reading the article about the imposement of a minimum wage of RM900 by the government, in my opinion, I think that it is good that the government set a minimum wage as employees’ rights and benefits can be protected but there are also some disadvantages to it. First of all, the minimum wage policy will cause significant number of unemployment in the short run. Since 34 percent of labours are significantly below the level of minimum wage, a 28.5 percent increase in wage rate, which is from RM 700 to RM 900 will significantly increase the production costs of firms that employ these unskilled labours especially for small and medium enterprises. An increase in labour costs means that total costs of these companies could rise as much as 20 percent, well enough for them to change and adjust their cost structure and budget. If firms were to maintain the same level of total costs, it means that they have to lay off existing employees and as a result, a higher unemployment rate will exist (as seen in the graph below).

            Besides that, by setting a minimum wage, there will also be an increase in job search as with the minimum wage rate, there will be a lesser demand for labour. In some perspective, it is also considered unfair because only those who have jobs will keep them benefit from the minimum wage. The unemployed end up worse off than they would be without the minimum wage as there will be a increase in competition. With an increase in wage rate, employers will seek better candidates to fill their vacancies, which will result in the unskilled labour to be either laid off or remain unemployed. The minimum wage rate imposed is also unfair as it blocks voluntary exchange. Firms are willing to hire more labor and people are willing to work more, but they are not permitted by the law to do so.

            Firms and employers will also be stressed as with the increase in the wage, to keep the same employees or to hire additional employees, they have to pay more. Firms will either resort to more cheap foreign labours or simply lay off labours and force the remaining labours to work for longer hours. If companies were to cheap foreign labours, they might take in illegal immigrants to work for them and pay them with a salary lower than the designated rate, especially for firms which discriminate their workers by paying a low salary. This will then increase the amount of foreign immigrants in our country, and they will most probably substitute the local labors, which will result in further unemployment.

            With the increase in wage, it may have an impact on the consumers as well. As wage is included in the company's production and manufacturing costs, for companies that usually pay their labours less than RM900, the products and services offered might be sold at a higher price. This is to cover the additional costs the firm has to bear to maintain the same amount of profit that can be earned. When the price is increased, for inelastic goods like cigarettes and alcohol, the sales will still remain about the same, and even if it falls, there will not be a drastic change. On the other hand, for elastic goods such as food and drinks, a price increase will decrease the quantity demanded, where it will move upwards along the demand curve. This may be either due to the consumers purchasing lesser of that good or them switching to substitute goods. After the drop in quantity demanded, companies will realize that cannot sell much of their products and services at that price, and to maintain the same level of profit margin without keeping too many inventories, they will have to decrease their supply. By decreasing their supply, companies will no longer need as much raw materials and labor, so they will cut down their material purchases as well as labor. This will result in them laying off some workers which will cause unemployment to occur.

            Furthermore, there is also a controversy regarding the minimum wage and student drop out rate. Research shows that with a higher minimum wage rate, students tend to quit school and go for work, as even without experience, there is a law protecting them saying that they have to be paid that much per month. Hence, there will be a increase in young and unskilled labor and a decrease in college as well as university graduates, which will have a negative impact on the society and the country. On the other hand, it is also said that with the presence of the minimum wage, students will tend to further their studies to increase employment chances as there is a stiff competition among vacancy applicants. Many students will at least finish with a SPM, Diploma, or a Degree cert, and with the increment in skilled and knowledgeable workers, it brings benefit to the company, society, and country as there will be a higher productivity and improvement.

            For companies which gives their workers extra benefits such as allowances, commissions, and claims, with the minimum wage rate, they might decrease their benefits and the employees will end up earning the same amount before the law was enforced. Thus, productivity might decrease as the motivators are lessened, and employees will think that since they already have a higher basic salary, they do not need to work as hard for the extra money to reach the same amount every month. This is a drawback for firms, as the productivity decreases even when they are paying the same amount of salary to their workers. Then, the company's sales and profit might decrease, and in the long run they will have to hire more labours, which costs even more. Therefore, the government have to do research and consider the consequences before making decisions and enforcing laws such as a price floor on wages.

Article 2

Electricity shortage: Yes or no to nuclear plants?

            According to a newspaper article, the demand for electricity has exceeded supply as some industries are not getting the supply they need. Based on economic theories learned in class, there are several main factors that causes the demand to increase. First, it is caused by the income factor. As electricity is a normal good, when income increases, consumers tend to use more electricity to give themselves a more comfortable life such as by turning on the air conditioner during the day, or by relaxing and watching television during the night. Another factor is the population, as an increase in population will increase the electricity demand. For example, a family with 3 members will definitely use lesser electricity compared to a family with 5 members as there are more people to cater the electricity to in a household. Besides, the increase in demand is also caused by the expected future price as well as the expected future income and credit. With an increase in demand, the price will be pushed higher as with the limited supply of electricity, people are willing to pay more to get the electricity they need (as seen in the graph below). As electricity is a necessity  no matter how much they earn or how much the price increases, people will still tend to use electricity as everyone needs it for their daily lives. Without electricity, there will be no usage of lights, fans, refrigerator  etc. This also tells us that electricity is a very inelastic good, as no matter how much the price increase, people will still be using it, perhaps just lesser in amount.

            On the other hand, for supply, there are also several reasons that result in the difficulty to increase the electricity supply to meet consumer's demands. One of them is the prices of factor of production. As said in the article, Malaysia is depending heavily on imports on fossil fuels such as coal as the natural resources in our country is depleting  With the import fees and the increasing prices, TNB may not be able to supply more energy with their allocated budget. TNB is a firm that acts as a monopoly, whereby it is protected by legal barriers to entry. Therefore, there are no other suppliers and the total electricity produced for the whole country is depending on that one firm itself. Besides, one of the most crucial factor is the advancement of technology. Since there are no new method is discovered to reduce the production costs of electricity such as new machines to mine for resources or a power efficient generator, thus the supply cannot increase. With the increasing demand and maybe decreasing supply, it may push the electricity tariff up to lessen the usage around the country.  

            As the existing power plant cannot supply more electricity for consumers, the country is said to be considering building a nuclear power plant as there are many advantages to it. Not only does a nuclear plant have almost 0 greenhouse gas emissions, a small amount of matter can create a large amount of energy as assuming the Uranium is fully utilized, a truckload of Uranium is equivalent in energy to approximately 10,000 truckloads of coal. Hence, a lot of energy can be generated from a single power plant. Also, modern reactors used in nuclear plants are around two to ten times more efficient than the old generation reactors currently in use, and new reactor types have been designed to make it physically impossible to melt down. As the core gets hotter, it causes the reaction to get slower, therefore a run-away reaction which may lead to a melt-down is impossible.

            Although there are many appealing advantages, there are still disadvantages that may be far more dangerous and unsafe than imagined. Other than the fact that nuclear plants are more expensive to build and maintain, it's waste products are dangerous and need to be carefully stored for a long period of time, and it's spent fuel is highly radioactive and has to be carefully stored for many years after use. Furthermore, a lot of waste from early reactors was stored in containers that are meant to last for only a few decades, but as they are kept longer than that period of time, leaks occurred which contaminated the surroundings which would cost a lot to clean and can be dangerous to it's employees too. If any mishaps happens, a nuclear plants can render and contaminate hundreds of square miles of land, making it inhabitable and unsuitable for any use for years or longer, and it can also kill off the entire river system.

            Besides that, apart from the disadvantages of the nuclear power plant, the government should also consider the risks involved and the effects if the power plant were to malfunction and explode to prevent history from reoccurring  The Chernobyl power plant which was located in Ukraine exploded in 1986, causing one of the worst nuclear disasters in history. The nuclear reactor exploded spread radioactive material all over Europe, and some of it even reached North America. During the incident, many people died in the immediate explosion from flames and intense radiation exposure. The explosion and its aftermath has affected the economy as the explosion cost an estimated $200 billion, where it includes the cost of the power plant and the buildings that were destroyed around it. Not only that, there are also longer lasting effects such as countless premature deaths due to cancer. It has also caused many birth defects in babies. In addition, the wildlife was also affected as not only the plants and animals died quickly after the explosion, but scientists noticed that wildlife is thriving in the area of the explosion now, possibly due to the lack of human habitation. Hence, it is hoped that the government will think it thoroughly before making any decisions.