Don’t blame Anwar for the low minimum wage

Whenever a minimum wage announcement falls short of public expectations, the political knee-jerk reaction is to aim all arrows at Prime Minister Anwar Ibrahim.

Yet, directing the blame solely at him misses the real dynamics behind Malaysia’s wage policy formulation.

First, consider how policy recommendations are shaped. Talent Corp and the human resources ministry paid RM1 million to a consulting firm specifically to research and recommend an appropriate minimum wage rate.

When the government relies on external subject-matter experts, paid handsomely with public funds, it acts on structured economic assessments rather than arbitrary political whims.

If the resulting figure feels inadequate to the working public, we must scrutinise the methodology, data and assumptions used by these highly paid consultants first.

The research, findings, and identity of these consultants ought to be made public for full transparency and proper scrutiny before rushing to condemn the prime minister.

Second, the relentless pushback from employer groups continues to stall wage growth. Business associations and industry groups routinely lobby against wage increases, warning of economic ruin and mass layoffs.

Their aggressive pushback invariably leads to exemptions and now deferred compliance for micro, small, and medium enterprises (MSMEs), diluting the impact of wage reforms across major sectors of the economy.

Meanwhile, Anwar’s track record demonstrates a consistent commitment to raising worker compensation.

The minimum wage has risen 33% under the Madani government from RM1,500 in 2022 to RM2,000 in 2027. Graduates and semi-skilled workers will have a new minimum monthly salary of RM2,500.

Under Anwar’s administration, government-linked companies (GLCs) have actively led by example, setting a baseline living wage that was raised in Budget 2027 from RM3,100 to RM3,400. This upward revision reflects a genuine drive to ensure decent standards of living where the government holds direct leverage.

The true obstacles to a higher floor wage are not found in the prime minister’s office. The real villains in this story are the corporate lobbies constantly fighting wage increases and the consultants who produce conservative recommendations despite million-ringgit fees.

Rather than make Anwar the scapegoat, public discourse should demand accountability from the consultants who drafted the proposal and the employer groups who consistently undermine fair pay for Malaysian workers.

That said, according to research and analysis published in The Economist, governments should be cautious about aggressive minimum wage hikes due to mounting evidence of hidden economic distortions and better alternative policy tools.

Research from Nobel Prize winner David Card and others in the 1990s showed that the negative impact of minimum wages was overstated and job-losses were offset by higher spending and economic activity.

Recent studies, such as evaluations of sharp minimum wage increases in places like Seattle, show that high-wage floors can slow down the hiring of low-wage workers and reduce total work hours rather than cause immediate mass layoffs.

To offset higher baseline pay, employers often resort to unpredictable scheduling, fewer workplace perks, or higher output demands that can lead to increased workplace accidents.

High minimum wages are a blunt tool for fighting poverty because many minimum-wage earners live in households with high-earning family members.

Businesses, especially in labour-intensive or low-margin sectors, frequently pass higher wage costs onto consumers through rising prices, triggering affordability pressures.

The Economist highlights alternatives such as in-work tax credits, the progressive wage policy (PWP) in Malaysia or reverse income taxes, as superior approaches because they target low-income households directly without creating the same economic distortions or hidden costs.

Regular readers of this column will be familiar with these ideas because I have advocated them for many years and they have recently been adopted by Bersama.

The views expressed are those of the writer and do not necessarily reflect those of FMT.

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