Minimum Wage Effective On Jan 1 Next Year

According to a news on The Star Online, 16th July 2012, the Minimum Wage Order 2012, which was gazetted Monday, effective on Jan 1 in 2013 for employers who employ six workers or more. According to the gazette, the minimum wage rate is fixed at RM 900 per month or RM 4.33 per hour for the peninsular and RM 800 per month or RM 3.85 per hour for Sabah and Sarawak.

The effort of government trying to increase the minimum wage is to secure the income of employees in the country, consider the low-pay working class especially the blue-collar. Therefore, they establish a price floor that makes it illegal to the employers to pay lower for their employees. A price floor is the minimum price fixed by the government. A price at or above the price floor is legal; a price below is not allowed. In the labor market, the floor is called the minimum wage. Simply put, minimum wage implemented to set the price higher than the equilibrium price. Apply the definition of equilibrium price stated early above, we can see that the government is trying to set a minimum wage to the labor market in which to set the price floor above the equilibrium price. Now, the economic effects occur where when the price set above the equilibrium price, the quantity of labor supplied exceeds the quantity of labor demanded thus there is a surplus of labor in the market. When the effect of surplus applied to a labor market, it is called an unemployment. In other words, minimum wage policy will encourage unemployment rate in the country. Consequently, the minimum wage is considered inefficient in an economic point of view. The minimum wage increase the unemployment rate and thus increase the job search. To explain, at the quantity of labor employed, the marginal social benefit of labor exceeds its marginal social cost of labor and a deadweight loss shrinks the firms' surplus and the workers' surplus.

Cheaper House for Selangor Folk

According to the news on The Sun on 21st September 2012, the price of affordable houses in Selangor will not exceed RM 120,000, Mentari Besar Tan Sri Abdul Khalid Ibrahim pledged yesterday. Abdul Khalid said the ceiling price is set in light of studies revealing that about 40% of Selangor households have an income of between RM 2500 and RM 5000. As an initial step, the state has set the price for affordable houses (800 - 1000 square feet) for middle income earners at between RM 85,000 and RM 120,000.

The government intervention in the housing market is to control the soaring prices of the houses in today's housing market and to ensure the low-income earners can afford buying houses in the states. So, they come up with price ceiling that makes it illegal to the seller to charge higher price than it is allowed. A price ceiling or price cap sets the maximum legal prices a seller may charge for a product or service. A price at or below the ceiling is legal; a price above is illegal. In the housing market, the ceiling is called a rent ceiling. In other words, rent ceiling tend to set the price lower than the market equilibrium price. Market equilibrium price (or equilibrium price) is the price where the intentions of buyers and sellers match. Theoretically, at the equilibrium price, the quantity demanded equals to the quantity supplied. Now we refer to the excerpt of the news above, we can see that the government is trying to impose a rent ceiling to set a maximum selling price for houses. The economic effects occur now: when the rent set below the equilibrium price, the quantity of housing demanded exceeds the quantity of housing supplied, thus there is a shortage of housing in the market. When shortage exists, the unit of the cheaper houses intended to sell the poor will be misallocated. This is because more and more lower income families are in search of those cheaper houses and the quantity of housing demanded increases at a lower price. Thus, people who really poor and in need of theses cheaper houses cannot buy it since there is a shortage in the market. At the end of the day, they will want to look for other alternatives in the market. Consequently, they will need to spend a lot of time in order to look for other cheaper houses available in the housing market. In the context of economics, anything that incurred the usage of time is considered a cost. Such cost is called the opportunity cost. The opportunity cost is spent when they in search of advertisements in the newspaper, browsing property websites through internet, making call to friends and agents for houses and the time consumed to visit houses. Hence, the opportunity cost is increased and all other resources such as car petrol, electricity bill, phone bill, and transportation fare is relatively increased. Another economic effects for imposing the rent ceiling will also encourages the illegal trading - a black market; an illegal market in which the equilibrium price exceeds the rent ceiling. When people still cannot find cheaper houses to reside, they will become frustrated and tend to find alternatives, for example to rent a house instead of buying a house. Now the landlord who is also frustrated due to the law imposed by the government to control house prices will start to run a black market. They do this because of unprofitable renting business due to cheaper houses are available in the market before and people are willing to buy those houses instead of to rent one. Since the shortage exists, the landlords tend to increase rental for the frustrated people who unable to seek cheaper houses.