Minimum wage hike should push businesses to improve productivity

Malaysia's most recent minimum wage increase is anticipated to benefit employees through higher incomes, while simultaneously prompting businesses to enhance their productivity to ensure that increased wages can be maintained without causing further price pressures. Nazmi Idrus, chief economist at CGS International Securities Malaysia, stated that wage growth has aided workers in regaining some of the purchasing power they lost during the inflationary period following the Covid-19 pandemic.

However, he cautioned that any future price hikes could diminish some of the gains made by households.

During periods of high inflation in the aftermath of the pandemic, consumer spending power was eroded. This recovery is partly due to wages catching up with inflation, but there is a risk that even higher inflation could undermine these gains, according to Idrus.

The government's Progressive Wage Policy is seen as a positive initiative, though its impact remains limited, with only around 50,000 workers currently benefiting. Expanding the program to more workers could help sustain wage growth through productivity improvements.

Despite moderate inflation, many households are still facing higher living costs due to slow wage growth, as highlighted in Bank Negara Malaysia's 2025 Annual Report. Income growth must outpace price increases to secure better living standards and strengthen purchasing power. When expenses rise faster than incomes, even minor price hikes can significantly impact households and their perception of the economy.

The Small and Medium Enterprises Association of Malaysia (Samenta) national president, Datuk William Ng, noted that SMEs are exempted from the latest minimum wage increase, providing smaller businesses with more flexibility in managing costs, particularly those operating in areas with lower living costs. Ng encouraged SMEs to invest in automation and digitalization to improve productivity, as wage increases are inevitable, either through regulation or market forces.

Similarly, the president of the Malaysia Semiconductor Industry Association, Datuk Seri Wong Siew Hai, emphasized the need for productivity improvements across all sectors, not just SMEs. He suggested that businesses should consider automation, artificial intelligence, enhancing product quality, and streamlining operations to reduce costs and maintain competitiveness both locally and globally. Additionally, addressing salary compression for other levels of employees is crucial to ensure overall cost increases.