How to raise people’s income

Former PKR deputy president Nurul Izzah Anwar emphasized the importance of structural wage reforms during the PKR congress, urging her father to focus on increasing incomes if he secures a second term as prime minister. Currently, Malaysia's economy is booming, with a strong 5.7% growth rate in the first half of the year, and a record number of people employed—17.3 million—resulting in low unemployment (around 3%).

These favorable conditions present an ideal opportunity to introduce structural changes in wages and incomes based on existing policy pillars.

A key starting point is the minimum wage. The government is currently reviewing the RM1,700 minimum wage, with a RM1 million budget and support from an external consultant. Historically, when similar investments were made, the suggested minimum wage was RM1,900. Considering the rising cost of living, setting a baseline of RM2,000 would be appropriate.

The impact of additional minimum wage increases on businesses should be minimal, as they are not currently struggling with rising operating costs or high fuel prices, which have remained constant. Furthermore, only fewer than two million people earn below the minimum wage, so the impact would not be widespread. Businesses that cannot afford to pay employees RM2,000 should consider closing rather than burdening themselves with increased expenses.

An alternative approach to simplifying the minimum wage system would be to establish it at RM2,000 and increase it annually based on the cost of living, tied to other wage increases. This would provide businesses with more stability and allow them to plan effectively. Bank Negara's frequently cited RM2,700 living-wage figure, originally a provisional estimate for a single adult in Kuala Lumpur based on 2016 costs, would now be around RM3,000 if linked to inflation since then.

Malaysia has also developed a more comprehensive living-wage benchmark of RM3,100, which is already being paid as a minimum wage to nearly 190,000 employees in government-linked companies and GLICs. Research by Bank Negara shows that minimum wage hikes primarily raise the income floor for workers earning below that level, but have little effect on those earning more.

To address this gap, the government could implement a progressive wage model (PWM) for over 50,000 people already benefiting from it. The remaining 2.95 million eligible workers could be covered by simplifying the model by making it automatic for all private companies, discontinuing the mandatory training requirement, and rejecting the notion that wages are directly linked to productivity.

Lastly, eliminating the concept of a regional minimum wage based on state-level cost of living and conditions would prevent people from low minimum wage states from migrating to higher minimum wage states, as well as reduce unnecessary complications for Malaysia.