Nationwide Minimum Wage: Is There A Better Way?
Minimum wage—just two words, yet they have huge significance on businesses, employees, and the economy. Since Budget 2025, it’s been a hot topic in Malaysia, sparking conversations about its impact on businesses, particularly Small and Medium-sized Enterprises (SMEs), and the wider public.
The minimum wage isn’t just a baseline salary. It’s a critical step toward addressing poverty, improving living standards, and aligning Malaysia with international labour standards. While the Minimum Wage Order aims to uplift low-wage workers, the concern is whether its benefits come at too high a cost.
If you believe that this increase in minimum wage doesn’t affect you directly because your salary is way higher than the minimum wage or your business can afford it, think again. The ripple effects of a new minimum wage will touch every corner of the economy, from the price of your nasi lemak to the sustainability of small businesses.
While low-wage workers benefit from minimum wage increases, these changes can trigger knock-on effects, such as businesses adjusting salaries for other employees due to seniority and experience. This may lead to higher production costs forcing businesses to raise prices and leading to inflation which ultimately affects the purchasing power of workers. This could be counterproductive if it hurts the exact low-wage workers that the policy intended to support. The impact of minimum wage increases on inflation is evident from the 2022 Minimum Wage Order, which saw the CPI rise from 2.5% in 2021 to 3.3% in 2022 following an RM300 wage hike.
Also, rising business costs could reduce employment opportunities, as businesses may consolidate roles to manage overheads by hiring one employee with a slightly higher salary to handle two roles, which costs less than employing two separate employees.
Does this mean we should avoid raising the minimum wage out of fear of inflation? Absolutely not! However, understanding its broader impacts allows us to explore other ways to address poverty and low-wage worker’s living standards.
Progressive Wage Policy
Another approach would be the Progressive Wage Policy (PWP) which is currently a voluntary initiative in Malaysia. PWP aims to increase wages in line with workers' skills and productivity. PWP was inspired bySingapore's Progressive Wage Model, which ties wages to skills, productivity, and job roles.
Unlike a nationwide minimum wage, which sets a uniform rate regardless of performance or industry, PWP motivates employees by rewarding skill growth. For instance, if you are a baker, a minimum wage order sets your pay at a fixed rate, no matter your skills or responsibilities. With PWP, as you learn new skills like cake decorating or managing customers, your pay increases. It’s a win-win because employees are motivated to grow, and the business achieves higher productivity and quality.
However, a challenge with the PWP is the implementation requires robust monitoring mechanisms and collaboration between government agencies, employers, and workers to ensure that productivity is accurately measured and fairly rewarded.
Regional Minimum Wages
Another approach worth looking at is the regional minimum wages. Countries like Japan use a prefecture-based system, while the U.S. allows each state to determine its own wage floor. China and Vietnam implement multi-tiered minimum wages to reflect local economic conditions, helping businesses in rural or less developed areas manage costs while still providing fair compensation to workers.
Based on Utusan Malaysia’s report Sabah, Perlis, and Kelantan may face unique challenges due to their lower costs of living and weaker business ecosystems. For SMEs in these regions, a uniform minimum wage could lead to layoffs or closures, deepening economic struggles and pushing vulnerable businesses to the brink. Without a tailored approach, these regions risk falling further behind economically, impacting not just businesses but entire communities that rely on them.
However, these regional wage model come with their own set of risks. Higher wages in urban areas often attract workers from rural regions, leading to overcrowded cities and strained infrastructure. To counter this, the aforementioned countries heavily invest in regional development, offering tax incentives, subsidies, and other forms of support to businesses operating in less developed regions. For example, in Sabah, investments in agriculture, tourism, and infrastructure could complement regional wage models by creating more local job opportunities and reducing the possibility of urban migration.
A practical example of a regional wage model in action is Johor's recent announcement of premium salary packages for skilled workers. This initiative, tied to the Johor-Singapore Special Economic Zone (JS-SEZ), offers RM4,000–RM5,000 for skilled roles, reflecting the region's economic needs and its competition with Singapore. Such localized approaches demonstrate how tailored wage policies can address specific regional challenges while attracting and retaining talent.
Final Thoughts
While the Minimum Wage Order improves living standards, its limitations necessitate exploring PWP and regional wage models. It is worth looking at all these approaches as the ultimate aim is balancing worker’s welfare and business sustainability.
11 November 2024
WRITTEN BY
SARA, SIA CHEW YAN & LEENALOCHANA
Find Sara, Sia Chew Yan at: https://www.linkedin.com/in/sara-sia
Find Leenalochana at: www.linkedin.com/in/leena39/
Sources:
4. https://www.isis.org.my/wp-content/uploads/2024/03/Malaysias-Progressive-Wage-Policy-final.pdf