Minimum wage hike should push businesses to improve productivity

KUALA LUMPUR: Malaysia's latest minimum wage increase is expected to benefit workers through better incomes, while encouraging businesses to step up efforts to improve productivity to ensure that higher wages can be sustained without putting further pressure on prices.

CGS International Securities Malaysia chief economist Nazmi Idrus said wage growth had helped workers recover some of the purchasing power lost during the high-inflation period following the Covid-19 pandemic.

He said wages had gradually caught up with inflation, although any fresh increase in prices could erode some of the gains made by households.

"During periods of high inflation post-pandemic, we saw the erosion of spending power. That has recovered somewhat as wages have clawed back above inflation, but potentially higher inflation could erode those gains," he told Bernama.

On the government's Progressive Wage Policy, Nazmi described it as a good initiative, although its reach remained limited, with only about 50,000 workers currently involved.

He said the programme should be expanded to benefit more workers and help ensure that wage growth was supported by productivity improvements.

According to Bank Negara Malaysia's Annual Report 2025, despite moderate inflation, many households continue to grapple with higher living costs amid slow wage growth. To secure better living standards and strengthen purchasing power, income growth needs to outpace price increases.

The report said that when expenses rise faster than incomes, even small price increases can have a significant impact on households, influencing perceptions of affordability and how they view the broader economy.

Recent income measures, such as revisions to the minimum wage, have helped ease the burden on more than five million workers in Malaysia. Over the longer term, however, deeper structural reforms are needed to address the root causes of subdued wage growth in the country, Bank Negara said.

Meanwhile, Small and Medium Enterprises Association of Malaysia (Samenta) national president Datuk William Ng said the exemption granted to SMEs from the latest minimum wage increase would give smaller businesses some room to manage their costs, particularly those operating in towns with lower living costs.

He said the direct impact on SMEs in major urban centres such as the Klang Valley, Johor Bahru and Penang was expected to be limited, as many were already paying wages above RM2,000.

"What the exemption means is that for SMEs in smaller towns where the cost of living is lower, they are not forced to raise wages at a time when we are facing severe margin compression.

"At the same time, it allows and encourages SMEs in the main urban centres to pay more at their own pace," he said.

He urged SMEs to use the opportunity to step up automation and digitalisation to improve productivity and reduce their reliance on workers.

"Regardless of the exemption this round, we must realise that wages will go up, whether driven by regulation or by market forces, and as such, increasing productivity is the only way forward," he said.

Echoing this view, Malaysia Semiconductor Industry Association president Datuk Seri Wong Siew Hai said the need to improve productivity was not limited to SMEs, as large companies also had to find ways to manage rising costs while maintaining their competitiveness both in Malaysia and globally.

He said businesses should consider adopting automation and artificial intelligence, as well as improving product quality and operational efficiency, to reduce costs and remain competitive.

"Also, companies need to take care of the salary compression issue for other levels. So, overall costs will increase," he added.

In the 2027 Budget announcement, Prime Minister Datuk Seri Anwar Ibrahim said the government had agreed to raise the minimum wage to RM2,000 from RM1,700, effective June 2027, with an exemption for micro, small and medium enterprises with annual sales revenue below RM50 million.

He also said the government would reform the worker income framework by introducing a minimum wage of RM2,500 per month for semi-skilled workers and graduates.

Anwar also welcomed the commitment by government-linked investment companies and government-linked companies to raise the living wage benchmark to RM3,400 from RM3,100 per month, a move expected to benefit 230,000 workers.