The second part of my analysis on the minimum wage policy of Malaysia will only focus on three issues: inflation, unemployment and productivity. Many think minimum wage will cause relative rise in the rate of inflation and unemployment in Malaysia in the coming months / years. Many argue that Malaysia labour simply do not have the productivity required for such wage (RM 900 for peninsula Malaysia and RM 800 for East Malaysia), thus discriminating firms operating in Malaysia especially small and medium enterprises (SME). Some even suggest that the policy will distort Malaysia competitiveness in the international trading. Not many people (that I know of) objectively praise the latest labour policy of Malaysia government.
First of all, as mentioned in my previous analysis (PTPTN issue part 1), GDP of Malaysia is RM 766 billion and GNI of Malaysia is RM 740 billion. With a population of 28.25 million, annual per capita GDP and GNI is at RM 27,115.04 and RM 26,194.69 respectively. That's RM 2259.58 and RM 2182.89 monthly per capita GDP and GNI. That's well above the minimum wage set by government. As we all know, setting minimum wage below equilibrium wage will not cause significant unemployment, but only eliminate imperfect information in labour market. However, this may not be the case for Malaysia and we shall investigate.
RM 900 set is just 25 percent above the poverty line of Malaysia (RM 720). Although 25 percent is a significant number, 25 percent above the poverty line is not significantly overpriced. In any part of Malaysia, RM 900 is barely enough for daily expenses, even for the most remote places in peninsula Malaysia.
However, according to a report from Human Resource Ministry of Malaysia, around 34 percent of labours in Malaysia earned less than RM 700 per month, lower than the RM 720 poverty line. The wage rate has only grown 2.6 percent over the past 10 years. That's around 43 percent lower than the average annual GDP growth for the same period (4.5683 percent). The main cause of the problem is the change in labour structure of Malaysia which foreign labour is considered as perfect substitution for unskilled labour in Malaysia. Hence, most firms do not demand unskilled labour if their wage is above the wage rate of foreign labour.
So, for our first issue: will minimum wage policy cause hike in inflation rate: yes, in short run. However, the hike will not be significant as the minimum wage is well below our average income. Slight increase in labour wage rate will not significantly increase the general price level of Malaysia. In the long run, inflation rate will not move at all by the minimum wage policy as expectation of labours adjusted to the level of minimum wage.
Second issue: unemployment. Yes, I agree with most people. Minimum wage policy alone will cause significant number of unemployment in the short run. Since 34 percent of labours are below significantly below the level of minimum wage, a 28.5 percent increase in wage rate (from RM 700 to RM 900) significantly increase the production costs of firms that employ these unskilled labours especially SMEs. 28.5 percent increase in labour costs means that total costs of SMEs could rise as much as 20 percent, well enough for them to change adjust their labour cost structure. 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 firms were to maintain the same level of total costs, it means that as much as 9.69 percent of labours could be substituted with cheap foreign labours. 9.69 percent rise in unemployment rate is disastrous for Malaysia economy.
For that, Malaysia government need to accompany the minimum wage policy with other labour market policy especially foreign labour policy. Adjustment to the structure of Malaysia labour market is needed in order to effectively increase the wealth distribution of Malaysia.
Third issue: productivity. As mentioned before, many argue that the rate of productivity of labours in Malaysia may not increase to the level of minimum wage. However, this is not true. For the past 10 years, rate of increase in productivity outperform rate of increase in wage level by around 40 percent. In other words, labours should earn more. So productivity is not an issue. After all, RM 900 merely means around RM 5 per hour.
So from this relatively simple analysis, minimum wage policy will not cause significant increase in inflation rate and will not have issue on insufficient rate of increment in productivity. The real issue faced by Malaysia under such policy is the structure of labour market. The minimum policy alone might cause relatively severe hike in unemployment rate without the interference of government in handling the foreign labour issue, at least in the short run. In the long run however, this may not be a problem as Malaysia transiting to developed economy.
2.5.12
My Analysis on the Minimum Wage Policy in Malaysia
Couple of days ago Human Resource Ministry of Malaysia announced the rate of minimum wage in Malaysia. It is officially RM 900 per month minimum wage for every local labour in Malaysia with exception of labours in house care sector.
The announcement was followed with moderate dissatisfaction from most Malaysia labours as they claimed RM 900 is insignificant compared to the living cost of Malaysia. A moderate level of demonstration was held on labour day yesterday for such purpose.
To be fair, they are right. The minimum wage is insignificant for most Malaysian as RM 900 is almost impossible for anybody that stay in major cities in Malaysia to survive with. However, they should also know that this is the minimum wage, not the recommended wage. Minimum wage should be, well, minimum. Besides, unreasonably high minimum wage could distort the labour market.
So here is my analysis on such matter.
Personally, I think this is a good policy by government. Minimum wage is there to ensure no (or minimum) discrimination on labours especially unskilled labours. This is the policy to protect these unskilled labours in the process of wage bargaining between them and firms. Commonly, unskilled labours are significantly discriminated with unreasonably rate of wage and unable to bargain correctly due to weak communication skills.
For skilled labours, the wage bargaining process should not be distorted. This process will automatically set the equilibrium wage for Malaysia labours. Distorting such process would affect the equilibrium wage, resulting in failure in labour market.
So, on this point, government of Malaysia is doing fine by setting the minimum wage rate just enough to protect the unskilled labours.
Using the simple New Keynesian analysis of price setting-wage setting analysis, setting high rate of minimum wage could result in leftward shift of wage setting curve, resulting in higher rate of involuntary unemployment. It means that setting high rate of minimum wage would not at all help most labours to earn higher wage but probably resulting in many unskilled labours to be unemployed.
Since labour market in Malaysia (and most of the world) is imperfect in information and mobility, setting a minimum wage below the equilibrium wage in labour market could still be efficient. With this, unskilled labours have more information on the rate of wage they should get, thus, eliminating certain level of micro level failures of labour market.
Statistical analysis backs my point. I will compare Malaysia minimum wage policy with several economies in the world. I will use petrol (or gasoline) price as my point of reference as it is the most important variable for any economy and likely to affect the rate of inflation in general.
The economies I will use are Hong Kong, Indonesia, Thailand, US, UK and Japan. Certain economies (such as Singapore) cannot be analyzed as no minimum wage policy is set. Besides, Ron 95 or unleaded grade of petrol will be used as proxy for petrol price.
For Hong Kong, the minimum wage rate is HK$ 28 per hour and petrol price is HK$ 17.15 per litre. Thus, per hour litre of petrol (litre of petrol one hour of wage can buy) is at 1.6327.
For Indonesia, the minimum wage rate is averagely at 5,000 rupiah per hour with petrol price at 10,300 rupiah per litre. This means 0.4854 per hour litre of petrol.
For US, the minimum wage is $7.25 per hour with petrol price at $1.03 per litre. This means 7.0388 per hour litre of petrol.
For UK, minimum wage rate is 5.93 GBP per hour with petrol price at 1.41 GBP per litre. 4.2057 per hour litre of petrol.
For Thailand, minimum wage rate is averagely at 21.94 Baht per hour with petrol price of 55.39 Baht per litre. 0.3961 per hour litre of petrol.
For Japan, minimum wage rate is averagely at 678.5 Yen with petrol price at 152.7 Yen per litre. 4.4434 per hour litre of petrol.
For the case of Malaysia, since we have monthly minimum wage, 2 assumptions have to be made. First, assume that there is no bonus. Next, total working hours are set in 2 groups. First group: 5 working days week with 8 hours per day, which means 40 working hours per week. Second group: 5 working days per week with 9 hours per day, or 5.5 working days with 8 hours per day, which means around 45 working hours per week.
For the first group (40 working hours per week), per hour wage rate is RM 5.19 and for the second group (45 working hour per week), per hour wage rate is RM 4.62. Since petrol price in Malaysia is RM 1.90, per hour litre of petrol are 2.7328 and 2.4292 respectively for these groups.
Looking at these data, our per hour litre of petrol is relatively lower than UK, US and Japan but higher than HK, Thailand and Indonesia. Since developed economies generally have proportionally higher rate of wages, it is unsurprised that UK, US and Japan per hour litre of petrol are higher than Malaysia. However, Malaysia per hour litre of petrol is higher than HK, effectively meaning that Malaysia minimum wage rate is much more generous than HK minimum wage rate.
So there is it. The minimum wage is properly scaled compared to other economies and it is properly designed to protect the unskilled labours from discrimination.
Although the policy is good, there is an area that can be improved. Monthly minimum wage rate is not the perfect way of minimum wage settings. Several other variables, such as working days per week, working hours per day etc. could affect the effectiveness of the policy. Thus, minimum wage policy should be set in hourly form to eliminate all the unknown variables.
The announcement was followed with moderate dissatisfaction from most Malaysia labours as they claimed RM 900 is insignificant compared to the living cost of Malaysia. A moderate level of demonstration was held on labour day yesterday for such purpose.
To be fair, they are right. The minimum wage is insignificant for most Malaysian as RM 900 is almost impossible for anybody that stay in major cities in Malaysia to survive with. However, they should also know that this is the minimum wage, not the recommended wage. Minimum wage should be, well, minimum. Besides, unreasonably high minimum wage could distort the labour market.
So here is my analysis on such matter.
Personally, I think this is a good policy by government. Minimum wage is there to ensure no (or minimum) discrimination on labours especially unskilled labours. This is the policy to protect these unskilled labours in the process of wage bargaining between them and firms. Commonly, unskilled labours are significantly discriminated with unreasonably rate of wage and unable to bargain correctly due to weak communication skills.
For skilled labours, the wage bargaining process should not be distorted. This process will automatically set the equilibrium wage for Malaysia labours. Distorting such process would affect the equilibrium wage, resulting in failure in labour market.
So, on this point, government of Malaysia is doing fine by setting the minimum wage rate just enough to protect the unskilled labours.
Using the simple New Keynesian analysis of price setting-wage setting analysis, setting high rate of minimum wage could result in leftward shift of wage setting curve, resulting in higher rate of involuntary unemployment. It means that setting high rate of minimum wage would not at all help most labours to earn higher wage but probably resulting in many unskilled labours to be unemployed.
Since labour market in Malaysia (and most of the world) is imperfect in information and mobility, setting a minimum wage below the equilibrium wage in labour market could still be efficient. With this, unskilled labours have more information on the rate of wage they should get, thus, eliminating certain level of micro level failures of labour market.
Statistical analysis backs my point. I will compare Malaysia minimum wage policy with several economies in the world. I will use petrol (or gasoline) price as my point of reference as it is the most important variable for any economy and likely to affect the rate of inflation in general.
The economies I will use are Hong Kong, Indonesia, Thailand, US, UK and Japan. Certain economies (such as Singapore) cannot be analyzed as no minimum wage policy is set. Besides, Ron 95 or unleaded grade of petrol will be used as proxy for petrol price.
For Hong Kong, the minimum wage rate is HK$ 28 per hour and petrol price is HK$ 17.15 per litre. Thus, per hour litre of petrol (litre of petrol one hour of wage can buy) is at 1.6327.
For Indonesia, the minimum wage rate is averagely at 5,000 rupiah per hour with petrol price at 10,300 rupiah per litre. This means 0.4854 per hour litre of petrol.
For US, the minimum wage is $7.25 per hour with petrol price at $1.03 per litre. This means 7.0388 per hour litre of petrol.
For UK, minimum wage rate is 5.93 GBP per hour with petrol price at 1.41 GBP per litre. 4.2057 per hour litre of petrol.
For Thailand, minimum wage rate is averagely at 21.94 Baht per hour with petrol price of 55.39 Baht per litre. 0.3961 per hour litre of petrol.
For Japan, minimum wage rate is averagely at 678.5 Yen with petrol price at 152.7 Yen per litre. 4.4434 per hour litre of petrol.
For the case of Malaysia, since we have monthly minimum wage, 2 assumptions have to be made. First, assume that there is no bonus. Next, total working hours are set in 2 groups. First group: 5 working days week with 8 hours per day, which means 40 working hours per week. Second group: 5 working days per week with 9 hours per day, or 5.5 working days with 8 hours per day, which means around 45 working hours per week.
For the first group (40 working hours per week), per hour wage rate is RM 5.19 and for the second group (45 working hour per week), per hour wage rate is RM 4.62. Since petrol price in Malaysia is RM 1.90, per hour litre of petrol are 2.7328 and 2.4292 respectively for these groups.
Looking at these data, our per hour litre of petrol is relatively lower than UK, US and Japan but higher than HK, Thailand and Indonesia. Since developed economies generally have proportionally higher rate of wages, it is unsurprised that UK, US and Japan per hour litre of petrol are higher than Malaysia. However, Malaysia per hour litre of petrol is higher than HK, effectively meaning that Malaysia minimum wage rate is much more generous than HK minimum wage rate.
So there is it. The minimum wage is properly scaled compared to other economies and it is properly designed to protect the unskilled labours from discrimination.
Although the policy is good, there is an area that can be improved. Monthly minimum wage rate is not the perfect way of minimum wage settings. Several other variables, such as working days per week, working hours per day etc. could affect the effectiveness of the policy. Thus, minimum wage policy should be set in hourly form to eliminate all the unknown variables.
26.4.12
Analysis of PTPTN Issue Part 2
Thanks to a comment by a reader who suggeted the difference between full PTPTN loan and fees of study, I will extend my analysis on the validity and possibility of free undergraduate study for all public universities students.
The simple arithmetic mean of full PTPTN loan for all courses taken by the undegraduates in public universities is slightly above RM 25,000 which is RM 8333.33 annually if we assume undergraduate study takes 3 years to complete.
Using the same data as in the previous post (8,000 new enrollment every year), it will cost government and public around RM 666 million to finance 1 batch of students annually or RM 2 billion to finance all undergraduate students in public universities annually. This amounted to RM 70 per capita annually and its more than 3 times compared to the previous analysis.
Using the same rate of opportunity cost (5 percent annually), RM 100 million should be added into the cost structure. So the total cost to fully finance undergraduate studies with full PTPTN loan is RM 2.1 billion or RM 74 per capita annually. How's that compare to the benefit?
As mentioned before, the increase productivity of labours amounted to RM 38 billion to RM 96 billion annually. So, macroeconomic-wise, it is still beneficial for Malaysia to implement such proposition. However, in the short run, the problems (as mentioned in the previous post) faced by Malaysia may prevent such implementation.
Here I want to justify another point: many comments I've seen recently mention about the effect of free higher education to future generation. They claim that free education may jeopardize future generation's opportunity of financing their undergraduate study.
Yes, boost of aggregate demand alone will resulted in short term increase in output but in the long run, the output will not increase and only resulted in inflationary pressure. That is true but investment in higher education will also increase in aggregate supply as labour productivity increases. Increament in aggregare demand and aggregate supply offset each other and general price will not increase significantly (assume that increase in aggregate demand and aggregate supply do not differ significantly). However increase in both will generate growth in output, boosting the long term potential output of Malaysia.
The real question is the burden faced by government and public (through tax) vs growth in output. If output growth outweight tax burden, then this proposition may not only benefit current generation but future generations as well. Since we already established that benefit outweight cost, the proposition could be beneficial to the future generations as well.
The simple arithmetic mean of full PTPTN loan for all courses taken by the undegraduates in public universities is slightly above RM 25,000 which is RM 8333.33 annually if we assume undergraduate study takes 3 years to complete.
Using the same data as in the previous post (8,000 new enrollment every year), it will cost government and public around RM 666 million to finance 1 batch of students annually or RM 2 billion to finance all undergraduate students in public universities annually. This amounted to RM 70 per capita annually and its more than 3 times compared to the previous analysis.
Using the same rate of opportunity cost (5 percent annually), RM 100 million should be added into the cost structure. So the total cost to fully finance undergraduate studies with full PTPTN loan is RM 2.1 billion or RM 74 per capita annually. How's that compare to the benefit?
As mentioned before, the increase productivity of labours amounted to RM 38 billion to RM 96 billion annually. So, macroeconomic-wise, it is still beneficial for Malaysia to implement such proposition. However, in the short run, the problems (as mentioned in the previous post) faced by Malaysia may prevent such implementation.
Here I want to justify another point: many comments I've seen recently mention about the effect of free higher education to future generation. They claim that free education may jeopardize future generation's opportunity of financing their undergraduate study.
Yes, boost of aggregate demand alone will resulted in short term increase in output but in the long run, the output will not increase and only resulted in inflationary pressure. That is true but investment in higher education will also increase in aggregate supply as labour productivity increases. Increament in aggregare demand and aggregate supply offset each other and general price will not increase significantly (assume that increase in aggregate demand and aggregate supply do not differ significantly). However increase in both will generate growth in output, boosting the long term potential output of Malaysia.
The real question is the burden faced by government and public (through tax) vs growth in output. If output growth outweight tax burden, then this proposition may not only benefit current generation but future generations as well. Since we already established that benefit outweight cost, the proposition could be beneficial to the future generations as well.
23.4.12
My Analysis on the Recent PTPTN Issue in Malaysia
After around 6 months absent due to extreme busyness, I finally have time to rant a little and I select the PTPTN issue as the topic of discussion.
For those who don't know, recently the opposition party of Malaysia (Pakatan Rakyat) suggested the possibility of free tertiary education in Malaysia. The issue has been snowballing ever since with various comments from various parties arised. Most government officials denied such possibility, claiming that this will lead to bankruptcy. Most current tertiary education "undergraduates" welcome the suggestion and even orchestrate an "event" at Dataran Merdeka to show their support towards this suggestion. Besides, many so-called analysts offer their comments on such issue, mostly oppose to this suggestion; and of course we have the public opinion. Public have been somewhat mixed in such issue but from my observation, most oppose the suggestion.
However, almost all analyses (or comments) so far have little credibility as they offer very little evidence or data. The level of objectivity is not up to par, leading to biases in their comment. Undergraduates, due to the concept of "self interest" will undoubtedly support the suggestion while government officials will (for whatever reason) oppose to the suggestion of opposition party. This time they claimed Malaysia will not benefit from this, to and extent that bankruptcy is a possibility if tertiary education is made free.
THE FOLLOWING IS THE ANALYSIS FROM THE AUTHOR AND AUTHOR ALONE. THE ANALYSIS IS BASED ON DATA OBTAINED FROM VARIOUS RELIABLE SOURCES AND ANALYSED USING OBJECTIVE ANALYTICAL TOOLS TO ELIMINATE ALL BIASES INVOLVED. VIEWERS DISCRETION IS ADVICED.
Bear in mind that I only channel the concept of free tertiary education towards the local students in our public universities and college universities. Private colleges and universities are profit oriented, thus impossible for the state to fully subsidise all fees involved.
Lets start with some important statistics. According to official statistics from Ministry of Higher Education (MOHE), we have 82,296 new enrolment into all public universities and college universities (U/CU) undergraduate programme. Averagely, we have almost 80,000 new enrolment every year to our public U/CU undergraduate programme. Mean study fees for each student every year (2 semesters) is RM 2,500.
If such information is considered, it costs Malaysia around RM 200,000,000 (two hundred million) to finance each batch of students. Since most undergraduate courses take about 3 years to finish, roughly estimation for Malaysia to fully finance all public undergraduates is RM 600,000,000 annually (six hundred million).
Six hundred million sounds very high considering we are a developing economy relying on domestic demand to boost our aggregate demand. However, if we reconsider our information so far, six hundred million for 240,000 students (8,000 x 3 years) every year merely means around RM 208 per month. If the benefits (increase in productivity) we obtain from such proposition exceed RM 208 per month, Malaysia should do this.
However, there are three visible problems: first, opportunity cost involve for the six hundred million is significant for the economy with only RM 766 billion annual gross domestic product and almost RM 740 billion gross national income. Investment in infrastructure could yield higher return in the long run for the economy, and even if it doesn't, it will still add significant weight to the RM 208 we talked about earlier.
Second, the capital needed to finance such a proposition required significant commitment from all agents of economy. With a population of 28.25 million, we need around RM 21 per capita to achieve such proposition. Tax is imminent under such event. Additional increament of six hundred million Ringgit into our money supply will result in enormous inflationary pressure to the economy.
Third, the characteristics of public goods, namely nonexcludability and nonrivalrous in consumption for public goods can't be satisfied. Tertiary education in U/CU is both rivaled and excludable services. With that, public can't enjoy this services at free will and utility may not be maximised. Furthermore, requiring public finance for a service that is both rivaled and excludable may not be welcomed by everyone, especially those with less possibility of enjoying it.
Nonetheless, numerically, using a moderate 5 percent opportunity cost rate, RM 30 million should be added into the total costs of this proposition, or RM 125 per capita. This equates RM 333 per capita every month. With such number, per capita "contribution" for every Malaysian would be merely RM 1 higher at around RM 22.
Next, we need to determine the increase in productivity of undergraduate compared to their primary and secondary eduation counterparts. This is not an easy task especially for the case of Malaysia as not much labour market researches focus on such aspect. However, from most researches that I can gather, with some slight ammendments to fit the case of Malaysia, productivity of higher education graduates are around 10-25 percent higher than primary and secondary graduates. Furthermore, the gap is proportionally higher, indicating that the difference in productivity between the 2 groups will grow bigger, supporting this proposition. Free tertiary education might increase the number of graduates in higher education, thus increasing the productivity of labours in general at increasing margin.
10 to 25 percent increase in labour productivity will generate an increament to our gross domestic product by RM 38 billion to RM 96 billion, way above our RM 630 million annual expenditure required to finance such proposition.
So, free tetiary education can really be possible and beneficial to the economy in general. Although such proposition requires significant investment and may result in higher tax rate or public debt level, with such significant growth potential to our economy, it may be a extremely good suggestion.
However, growth in output level, deficit budget and public debt are still main problems of Malaysia economy, increasing the difficulty of such proposition to be implemented. In the short run, the time lag involved may cause ineffectiveness of such implementation.
In the long run, free tertiary education could be one of the catalysts that lift Malaysia towards a high income economy.
For those who don't know, recently the opposition party of Malaysia (Pakatan Rakyat) suggested the possibility of free tertiary education in Malaysia. The issue has been snowballing ever since with various comments from various parties arised. Most government officials denied such possibility, claiming that this will lead to bankruptcy. Most current tertiary education "undergraduates" welcome the suggestion and even orchestrate an "event" at Dataran Merdeka to show their support towards this suggestion. Besides, many so-called analysts offer their comments on such issue, mostly oppose to this suggestion; and of course we have the public opinion. Public have been somewhat mixed in such issue but from my observation, most oppose the suggestion.
However, almost all analyses (or comments) so far have little credibility as they offer very little evidence or data. The level of objectivity is not up to par, leading to biases in their comment. Undergraduates, due to the concept of "self interest" will undoubtedly support the suggestion while government officials will (for whatever reason) oppose to the suggestion of opposition party. This time they claimed Malaysia will not benefit from this, to and extent that bankruptcy is a possibility if tertiary education is made free.
THE FOLLOWING IS THE ANALYSIS FROM THE AUTHOR AND AUTHOR ALONE. THE ANALYSIS IS BASED ON DATA OBTAINED FROM VARIOUS RELIABLE SOURCES AND ANALYSED USING OBJECTIVE ANALYTICAL TOOLS TO ELIMINATE ALL BIASES INVOLVED. VIEWERS DISCRETION IS ADVICED.
Bear in mind that I only channel the concept of free tertiary education towards the local students in our public universities and college universities. Private colleges and universities are profit oriented, thus impossible for the state to fully subsidise all fees involved.
Lets start with some important statistics. According to official statistics from Ministry of Higher Education (MOHE), we have 82,296 new enrolment into all public universities and college universities (U/CU) undergraduate programme. Averagely, we have almost 80,000 new enrolment every year to our public U/CU undergraduate programme. Mean study fees for each student every year (2 semesters) is RM 2,500.
If such information is considered, it costs Malaysia around RM 200,000,000 (two hundred million) to finance each batch of students. Since most undergraduate courses take about 3 years to finish, roughly estimation for Malaysia to fully finance all public undergraduates is RM 600,000,000 annually (six hundred million).
Six hundred million sounds very high considering we are a developing economy relying on domestic demand to boost our aggregate demand. However, if we reconsider our information so far, six hundred million for 240,000 students (8,000 x 3 years) every year merely means around RM 208 per month. If the benefits (increase in productivity) we obtain from such proposition exceed RM 208 per month, Malaysia should do this.
However, there are three visible problems: first, opportunity cost involve for the six hundred million is significant for the economy with only RM 766 billion annual gross domestic product and almost RM 740 billion gross national income. Investment in infrastructure could yield higher return in the long run for the economy, and even if it doesn't, it will still add significant weight to the RM 208 we talked about earlier.
Second, the capital needed to finance such a proposition required significant commitment from all agents of economy. With a population of 28.25 million, we need around RM 21 per capita to achieve such proposition. Tax is imminent under such event. Additional increament of six hundred million Ringgit into our money supply will result in enormous inflationary pressure to the economy.
Third, the characteristics of public goods, namely nonexcludability and nonrivalrous in consumption for public goods can't be satisfied. Tertiary education in U/CU is both rivaled and excludable services. With that, public can't enjoy this services at free will and utility may not be maximised. Furthermore, requiring public finance for a service that is both rivaled and excludable may not be welcomed by everyone, especially those with less possibility of enjoying it.
Nonetheless, numerically, using a moderate 5 percent opportunity cost rate, RM 30 million should be added into the total costs of this proposition, or RM 125 per capita. This equates RM 333 per capita every month. With such number, per capita "contribution" for every Malaysian would be merely RM 1 higher at around RM 22.
Next, we need to determine the increase in productivity of undergraduate compared to their primary and secondary eduation counterparts. This is not an easy task especially for the case of Malaysia as not much labour market researches focus on such aspect. However, from most researches that I can gather, with some slight ammendments to fit the case of Malaysia, productivity of higher education graduates are around 10-25 percent higher than primary and secondary graduates. Furthermore, the gap is proportionally higher, indicating that the difference in productivity between the 2 groups will grow bigger, supporting this proposition. Free tertiary education might increase the number of graduates in higher education, thus increasing the productivity of labours in general at increasing margin.
10 to 25 percent increase in labour productivity will generate an increament to our gross domestic product by RM 38 billion to RM 96 billion, way above our RM 630 million annual expenditure required to finance such proposition.
So, free tetiary education can really be possible and beneficial to the economy in general. Although such proposition requires significant investment and may result in higher tax rate or public debt level, with such significant growth potential to our economy, it may be a extremely good suggestion.
However, growth in output level, deficit budget and public debt are still main problems of Malaysia economy, increasing the difficulty of such proposition to be implemented. In the short run, the time lag involved may cause ineffectiveness of such implementation.
In the long run, free tertiary education could be one of the catalysts that lift Malaysia towards a high income economy.
9.12.11
Italian Job for Manchester Duo?
As we all know, the City of Manchester Duo: Manchester City and United are out of the Champions League and England are left with Arsenal and Chelsea to carry their pride. We can feel the pain of it especially in England with English press exaggerate the misery of English football in Europe this year and also in Malaysia where most football fans here can't name more than 10 players playing outside England.
However, you may wonder why such miserable feeling exist? I mean they still have 2 teams to carry their pride. Spain, Germany and France, they all have 2 teams in the knockout stage as well (Real and Barca for Spain, Leverkusen and bayern for Germany, Lyon and Marseille for France). Only Italy have more team in the knockout stage than England (3 teams). So it perfectly ok to say England are on par with teams from other prestigious leagues in Europe
Nahhh. For English football fans, they are better than everyone in Europe and should have more representatives than any league in the knockout stage of the highest level European football tournament. Such pride and ego started in the 1970' with clubs such as Liverpool, Nottingham Forest and Aston Villa that dominated European Cup in 7 of 8 seasons from 1976/77 to 1983/84 season. After that, Heysel incident stopped English football momentum and they did not recover until 1998/99 with the amazing win of United over Bayern. During that period, Italian football were king of Europe and world. From 1988/89 to 1997/98 (10 seasons), Italian club only missed 1 European Cup final (1990/91). All the world's biggest football stars were playing at Serie A and it was deemed the "mini world cup"
The success of Italian clubs in Europe and fierce competition of Serie A killed Italian football (in my opinion). Serie A clubs did not take European competition seriously and often sent their second team to play in Europe while their best were reserved for domestic competition. Clubs such as Milan, Inter, Juve, Fiorentina, Roma, Parma and Lazio made Serie A the absolute best of Europe and the world. As a result, after the 1997/98 season ended, their performance sunk. Their ignorance toward European competition coped with their ego to become bigger caused them to financially failed. Domestic competition alone couldn't generate enough revenue to offset their huge wage expenses needed to attract the best football players. By the time they realized this, it was too late.
Similar case may be developed in the case of England. Before this, lets face it, English Premier League were not competitive. ( I am sure most English football fans are either very mad now or straight away leave the page lol but let me explain.) English Premier League had less league winner in the past 15 seasons than any prestigious league in Europe including La Liga, Serie A, League 1 and Bundesliga. Only 3 clubs managed to snatch the EPL trophy in the past 15 seasons. Even Spain with the dominance of Barca and Real produced 4 league champions during the period.
The relatively less competitive domestic league enabled English clubs to focus all their firepower towards European competition and as a result, they managed to play some of the best football in Europe for the last 10 seasons. However, even with such conditions, they still didn't manage to dominate Europe. (1 more time EPL fans will probably be very angry). Yes, I know, English clubs had good performance in the knockout stage of Champions' League but they did not dominate the UCL finals like Italy did 10 years prior. In the last 10 seasons, they managed to be featured in 6 finals (less than 9 for Italian clubs) and of that 6 finals (although 2007/08 they had 2 clubs in the final: Chelsea and Man United, it is counted as 1 as it was in the same year), they only managed to win it twice. Clubs from Spain (4 wins) and Italy (3 wins) are more successful than English clubs.
So here we are, 2011/12 season, the strong rise of Manchester City and Tottenham Hotspur make the English Premier League more competitive than ever (in my opinion still not as competitive as Italian Serie A in the 1990's) and immediately we can see the effect. Top 2 teams are out of European top football competition and had to play in Europa League. It shouldn't surprise us as even with ideal conditions for the last 10 seasons (less competitive domestic league, financially successful, 100% focus in European competition, right mentality, fans support etc.), the English clubs couldn't dominate Europe. It's no surprise why their play so mediocre in Europe this season. Unless Chelsea or Arsenal sacrifice their domestic competition, I don't think Chelsea and Arsenal can go very far. (well Arsenal may do so since they are 12 points behind Man City).
Only 2 clubs in the world can dominate a competitive domestic competition and Europe: Barcelona and Real Madrid. Many football fans claimed that Spanish La Liga isn't competitive. Well when you have Barcelona and Real Madrid in the same league, any league will have similar scenario. Put these 2 teams in English Premier League and you will have Barca and Real dominate EPL as well. Fact is Spain are more competitive than EPL. Look at where are Villareal this season (4th last season, currently at 15). How bout Levante (14th last season, currently at 4th). That's the sign of competitive football: all teams have equal opportunity of finishing in any position (with the exception of Barca and Real of course as they are by far the 2 best clubs in the world).
So will English football follow the footstep of Italian football 10-15 years ago and left behind in European competition caused by fierce competition in domestic league? only time will tell. In the mean time, it's time to wake up for all English fans and media. Put aside your ego and pride. Watch other football leagues and discover their beauty. You are not a true football fans if you know nothing about football club competition except for English Premier League. To prove my point, here's a question for all the English football fans: Manchester City were eliminated by Bayern and Napoli and both of them are big clubs in their country. Can you name 5 players currently from Bayern and Napoli? If you can't? What? Football Fans? LOL
However, you may wonder why such miserable feeling exist? I mean they still have 2 teams to carry their pride. Spain, Germany and France, they all have 2 teams in the knockout stage as well (Real and Barca for Spain, Leverkusen and bayern for Germany, Lyon and Marseille for France). Only Italy have more team in the knockout stage than England (3 teams). So it perfectly ok to say England are on par with teams from other prestigious leagues in Europe
Nahhh. For English football fans, they are better than everyone in Europe and should have more representatives than any league in the knockout stage of the highest level European football tournament. Such pride and ego started in the 1970' with clubs such as Liverpool, Nottingham Forest and Aston Villa that dominated European Cup in 7 of 8 seasons from 1976/77 to 1983/84 season. After that, Heysel incident stopped English football momentum and they did not recover until 1998/99 with the amazing win of United over Bayern. During that period, Italian football were king of Europe and world. From 1988/89 to 1997/98 (10 seasons), Italian club only missed 1 European Cup final (1990/91). All the world's biggest football stars were playing at Serie A and it was deemed the "mini world cup"
The success of Italian clubs in Europe and fierce competition of Serie A killed Italian football (in my opinion). Serie A clubs did not take European competition seriously and often sent their second team to play in Europe while their best were reserved for domestic competition. Clubs such as Milan, Inter, Juve, Fiorentina, Roma, Parma and Lazio made Serie A the absolute best of Europe and the world. As a result, after the 1997/98 season ended, their performance sunk. Their ignorance toward European competition coped with their ego to become bigger caused them to financially failed. Domestic competition alone couldn't generate enough revenue to offset their huge wage expenses needed to attract the best football players. By the time they realized this, it was too late.
Similar case may be developed in the case of England. Before this, lets face it, English Premier League were not competitive. ( I am sure most English football fans are either very mad now or straight away leave the page lol but let me explain.) English Premier League had less league winner in the past 15 seasons than any prestigious league in Europe including La Liga, Serie A, League 1 and Bundesliga. Only 3 clubs managed to snatch the EPL trophy in the past 15 seasons. Even Spain with the dominance of Barca and Real produced 4 league champions during the period.
The relatively less competitive domestic league enabled English clubs to focus all their firepower towards European competition and as a result, they managed to play some of the best football in Europe for the last 10 seasons. However, even with such conditions, they still didn't manage to dominate Europe. (1 more time EPL fans will probably be very angry). Yes, I know, English clubs had good performance in the knockout stage of Champions' League but they did not dominate the UCL finals like Italy did 10 years prior. In the last 10 seasons, they managed to be featured in 6 finals (less than 9 for Italian clubs) and of that 6 finals (although 2007/08 they had 2 clubs in the final: Chelsea and Man United, it is counted as 1 as it was in the same year), they only managed to win it twice. Clubs from Spain (4 wins) and Italy (3 wins) are more successful than English clubs.
So here we are, 2011/12 season, the strong rise of Manchester City and Tottenham Hotspur make the English Premier League more competitive than ever (in my opinion still not as competitive as Italian Serie A in the 1990's) and immediately we can see the effect. Top 2 teams are out of European top football competition and had to play in Europa League. It shouldn't surprise us as even with ideal conditions for the last 10 seasons (less competitive domestic league, financially successful, 100% focus in European competition, right mentality, fans support etc.), the English clubs couldn't dominate Europe. It's no surprise why their play so mediocre in Europe this season. Unless Chelsea or Arsenal sacrifice their domestic competition, I don't think Chelsea and Arsenal can go very far. (well Arsenal may do so since they are 12 points behind Man City).
Only 2 clubs in the world can dominate a competitive domestic competition and Europe: Barcelona and Real Madrid. Many football fans claimed that Spanish La Liga isn't competitive. Well when you have Barcelona and Real Madrid in the same league, any league will have similar scenario. Put these 2 teams in English Premier League and you will have Barca and Real dominate EPL as well. Fact is Spain are more competitive than EPL. Look at where are Villareal this season (4th last season, currently at 15). How bout Levante (14th last season, currently at 4th). That's the sign of competitive football: all teams have equal opportunity of finishing in any position (with the exception of Barca and Real of course as they are by far the 2 best clubs in the world).
So will English football follow the footstep of Italian football 10-15 years ago and left behind in European competition caused by fierce competition in domestic league? only time will tell. In the mean time, it's time to wake up for all English fans and media. Put aside your ego and pride. Watch other football leagues and discover their beauty. You are not a true football fans if you know nothing about football club competition except for English Premier League. To prove my point, here's a question for all the English football fans: Manchester City were eliminated by Bayern and Napoli and both of them are big clubs in their country. Can you name 5 players currently from Bayern and Napoli? If you can't? What? Football Fans? LOL
8.12.11
Ministry of Tourism Malaysia (Kementerian Pelancongan Malaysia)
Currently terribly busy with my work and study. Wrote so much articles (all at half way) but do not have time to finish them. Anyway I have a great story to share with all of you as I think it's a joke to our beloved nation, Malaysia.
Was dealing with my eductional matter at Malaysia Ministry of Higher Education (MOHE), Putrajaya and found out that Ministry of Tourism of Malaysia is just beside MOHE so went there for some tourism brochures and materials for my next holiday.
Went to the main entrance of the Ministry of Tourism, asked the security guard for direction, greeted by a surprised looking guard that direct me to the customer services counter directly in front of the main entrance.
So went to the counter and greeted by few Malays that speak very poor English. Asked for tourism maps and brochures. Again these receptionists showed surprised expression and did not answer anything at first. Then after few minutes of clarification in Bahasa Melayu, finally they understood and told me to go to first storey. However before I could go, I had to get a visitor pass by putting my driving license there (what if someone doesn't have one?).
Went to first storey and found out that it was the wrong floor. There was nothing there except for few counters dealing with licensing matters.
Went down again to the main entrence counter and re-asked those receptionists and they told me to go to second story this time.
So went to second storey. Came out of the lift and there were 2 doors: the one on the right (door A, I think) was locked and the one on the left was wide opened. Seriously, take a guess: which door is the correct one?
Wrong! The door on the left was the entrance to the library of Tourism Ministry. Went to the librarian. Again greeted with surprised expression. Asked by the librarian to scan my visitor pass on a scanning machine on the side of the locked door (door A).
Once scanned, the door unlocked and there was another person there, responsible for all the tourism brochures and maps. So took some and went out of this miserable place.
So let's make everything clear: to get tourism brochures and maps at Ministry of Tourism of Malaysia, I need to walk into the building, hand over my driving license (wonder what happen if I don't have 1), deal with few receptionists who don't know much, go to the second floor of the building, scan my visitor pass on a machine next to a locked door with no instruction at all from those receptionists, then finally ask for them at a counter. I wouldn't call it user friendly.
How bout just put those brochures and maps beside the main entrance? Why make it so difficult for tourists to get tourism informations at the Ministry of Tourism? Does it make sense that people will go to Ministry of Tourism of a nation to get some tourism information? Or are they intend to purposely create a fun maze for tourists to enjoy?
Nevertheless, do you all (Malaysian) have similar story? if so, why not share......
Was dealing with my eductional matter at Malaysia Ministry of Higher Education (MOHE), Putrajaya and found out that Ministry of Tourism of Malaysia is just beside MOHE so went there for some tourism brochures and materials for my next holiday.
Went to the main entrance of the Ministry of Tourism, asked the security guard for direction, greeted by a surprised looking guard that direct me to the customer services counter directly in front of the main entrance.
So went to the counter and greeted by few Malays that speak very poor English. Asked for tourism maps and brochures. Again these receptionists showed surprised expression and did not answer anything at first. Then after few minutes of clarification in Bahasa Melayu, finally they understood and told me to go to first storey. However before I could go, I had to get a visitor pass by putting my driving license there (what if someone doesn't have one?).
Went to first storey and found out that it was the wrong floor. There was nothing there except for few counters dealing with licensing matters.
Went down again to the main entrence counter and re-asked those receptionists and they told me to go to second story this time.
So went to second storey. Came out of the lift and there were 2 doors: the one on the right (door A, I think) was locked and the one on the left was wide opened. Seriously, take a guess: which door is the correct one?
Wrong! The door on the left was the entrance to the library of Tourism Ministry. Went to the librarian. Again greeted with surprised expression. Asked by the librarian to scan my visitor pass on a scanning machine on the side of the locked door (door A).
Once scanned, the door unlocked and there was another person there, responsible for all the tourism brochures and maps. So took some and went out of this miserable place.
So let's make everything clear: to get tourism brochures and maps at Ministry of Tourism of Malaysia, I need to walk into the building, hand over my driving license (wonder what happen if I don't have 1), deal with few receptionists who don't know much, go to the second floor of the building, scan my visitor pass on a machine next to a locked door with no instruction at all from those receptionists, then finally ask for them at a counter. I wouldn't call it user friendly.
How bout just put those brochures and maps beside the main entrance? Why make it so difficult for tourists to get tourism informations at the Ministry of Tourism? Does it make sense that people will go to Ministry of Tourism of a nation to get some tourism information? Or are they intend to purposely create a fun maze for tourists to enjoy?
Nevertheless, do you all (Malaysian) have similar story? if so, why not share......
22.9.11
Economic Crisis???
Recently I am superbly busy with my works and my PhD thesis. Just finished couple of researches and a seminar as speaker. Finally have some time to rant about some of my thoughts and understanding especially on the subject of economic crisis.
Now, with just 10 - 20% retracement in the those tradable financial markets, we are all doom!!!!! There is no tomorrow!!!!! US will be recession!!!!! Economy is going south!!!!! Sell sell sell!!!!!
Furthermore, did economy recover compared to 2008?
Unemployment is worst (in most developed economies) now compared than 2008, output did not increase much compared to 2008 due to high level of umployment (deflationary gap). monetary expansion does not yield any quantitative and/or qualitative improvement other than inflation. Productivity did not improve as well. The only change that we have is the liquidity in tradable financial markets due to the significant aggresive monetary expansion from central banks and fiscal expansion that cause governments around the world to have budget deficit problems. So I wont be surprise if stock markets visit their september 2008 low.
WAIT?
Most investors / specualtors / trades do not like to listen to economics stuff. What they want is that how to gain profit in such economy condition (at least that's what my asset management client ask all the time).
Well, if you listen to what I said in 2008 (invest in commodity market), I am sure you have gain at least 200%. Furthermore, investment is always long term. It's much better to buy a good firm at fair price than fair firm at good price. If you own shares of good and profitable firms, keep it. Warren Buffett will not be the (second) richest man in the world today had him sold Coca cola or Gillete during the US recession of 1993.
Another question that I often get from my client is that how do I earn profit during bearish market sentiment? Well, how bout put option, put warrant, Bear contact, short derivative etc. Investing in safe instrument such as money market and bond market can also maximise the return. Furthermore cash is king now. Lower loss = higher gain.
Unless economy improves (ie lower unemployment and more stable positive economic growth), do not rush into the market. This is probably the best time for us to find a good firm with fair price. (KO maybe lol.)
3-4 years ago, we all know what happened. Burst of subprime market cause the economy to went south and we experienced then greatest economic crisis since Great Depression.
After that, everybody started talking about recovery and stimulus as well as quantitative easing. Everybody was optimistic about the future including all those central banks, investment bankers and investors / speculators. Asset prices started increasing and profit was running wild in derivative markets, commodity markets, stock markets and other tradable financial markets. Majority stock markets rallied more than 100% compared to their September 2008 low. Some even managed to rally more than 200% (Latin America SE).Now, with just 10 - 20% retracement in the those tradable financial markets, we are all doom!!!!! There is no tomorrow!!!!! US will be recession!!!!! Economy is going south!!!!! Sell sell sell!!!!!
Furthermore, did economy recover compared to 2008?
Unemployment is worst (in most developed economies) now compared than 2008, output did not increase much compared to 2008 due to high level of umployment (deflationary gap). monetary expansion does not yield any quantitative and/or qualitative improvement other than inflation. Productivity did not improve as well. The only change that we have is the liquidity in tradable financial markets due to the significant aggresive monetary expansion from central banks and fiscal expansion that cause governments around the world to have budget deficit problems. So I wont be surprise if stock markets visit their september 2008 low.
WAIT?
Most investors / specualtors / trades do not like to listen to economics stuff. What they want is that how to gain profit in such economy condition (at least that's what my asset management client ask all the time).
Well, if you listen to what I said in 2008 (invest in commodity market), I am sure you have gain at least 200%. Furthermore, investment is always long term. It's much better to buy a good firm at fair price than fair firm at good price. If you own shares of good and profitable firms, keep it. Warren Buffett will not be the (second) richest man in the world today had him sold Coca cola or Gillete during the US recession of 1993.
Another question that I often get from my client is that how do I earn profit during bearish market sentiment? Well, how bout put option, put warrant, Bear contact, short derivative etc. Investing in safe instrument such as money market and bond market can also maximise the return. Furthermore cash is king now. Lower loss = higher gain.
Unless economy improves (ie lower unemployment and more stable positive economic growth), do not rush into the market. This is probably the best time for us to find a good firm with fair price. (KO maybe lol.)
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