PETALING JAYA: Any possible changes to the minimum wage in Budget 2027 must also be supported by policies that improve workers’ skills, experience and productivity to be effective, according to economists and employers.
Universiti Malaya economist Prof Dr Mohd Nazari Ismail said raising the minimum wage excessively would represent a major intervention that could negatively affect the labour market in the long term.
“While such a move could reduce poverty and narrow wage disparities in the short term, many enterprises – especially small and medium-sized businesses – will face severe cost pressures.
“If companies maintain profit margins by passing higher costs to consumers, rising prices for goods and services will wipe out any benefits of a wage hike through inflation,” he said.
As such, he said the government must also implement policies that drastically increase labour productivity (output) to balance out any increase in minimum wages.
He was commenting on Prime Minister Datuk Seri Anwar Ibrahim’s announcement on Sept 26 that Budget 2027 will contain initiatives to address wage disparities in Malaysia.
Prof Mohd Nazari added that a lasting solution requires tackling the current debt-based monetary system, which he argued fuels high debt levels and expands the money supply.
“This high debt level serves to prevent employers from increasing wages and salaries by themselves.
“At the same time, inflation reduces the amount of goods and services that existing wages can pay for, thereby contributing to cost of living problems,” he said.
AmBank Group chief economist Firdaos Rosli said the minimum wage should primarily serve as a safety net rather than become the benchmark for broader wage-setting.
He warned that excessively increasing the minimum wage without proper consideration is a one-way street with no recourse available in the event of an unideal wage floor.
“Setting a higher minimum wage must also be accompanied by higher enforcement through adequate increases to labour inspectors to ensure business compliance,” he added.
Malaysian Employers Federation senior adviser Datuk Dr Syed Hussain Syed Husman said employers believed any minimum wage changes in Budget 2027 should focus on how to raise wages sustainably.
“The more important question is how Malaysia can achieve sustainable wage growth without undermining employment, business viability and investment.
“Minimum wage is a statutory floor. It should not, however, become the mechanism for determining the wages of the entire workforce,” he said.
Instead, Syed Hussain said any minimum wage changes in Budget 2027 must come alongside improvements or long term plans to raise productivity, skills, technology adoption and local business performance.
“There must be greater emphasis on enabling wage progression in Budget 2027, allowing workers to more easily move from entry-level wages to higher wages as they acquire higher skills, experience, responsibilities and productivity.
“Budget 2027’s objective should be to create a conducive environment in which businesses pay more wages due to becoming more productive and competitive, rather than simply legislating higher wages without addressing the employers’ capacity to pay,” he added.
