PETALING JAYA: The increase in minimum wage will support a smoother transition of economic growth to households in Malaysia, while making growth more inclusive and widely felt.
BIMB Securities Sdn Bhd deputy chief economist Muhammad Zafri Zulkeffeli said he believes a higher wage growth will translate into better purchasing power for many.
Muhammad Zafri told StarBiz the increase is set to impact and directly benefit groups of people including those aged 20 to 24 who have a low education, reside in Kelantan and are non-citizen groups as their median salaries are less than RM2,000 right now.
On the costs of living, he pointed out looking at inflation and the consumer price index, the likely inflation pressure will be between 1.5% and 2.5%.
“Many thanks to the controlled price mechanism by the government as well as the targeted subsidy approach. This will support real wage growth in positive territory,” he said.
The notion that the new minimum wage could squeeze businesses is not something new.
Muhammad Zafri said because sectors vary in terms of profit margins – larger businesses will be able to swallow the costs while the smaller businesses will likely transfer costs by raising prices.
“The worst case is to reduce output size. Wage increases are more sustainable in manufacturing, construction, and services, while agriculture and mining will need greater investment,” he reckoned.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said Budget 2027 was a pragmatic one – as the government remains committed to financial discipline while acknowledging predicaments faced by Malaysians.
He told StarBiz the increase in minimum wage serves to address inefficiencies in the labour market, and is a form of intervention.
“Some businesses will be in a better position to withstand the increase. However, the various exemptions the government is providing, especially on sales numbers, is meeting businesses in between, considering the rising cost of living,” he said.
Mohd Afzanizam added businesses on their own also face their own set of challenges but the larger ones will be able to withstand the increase.
Separately, Wong & Partners Employment & Compensation Partner, Trishelea Sandosam said while the minimum wage increase will see some improvements in purchasing power, the knock-on effects in terms of higher costs to businesses will likely result in an increase in prices and living costs.
This she said, could temper the gains sought to be achieved.
On labour-intensive industries, Trishelea said employers will need to develop efficiencies to mitigate the effect on prices, job losses and a slowdown in recruitment.
“The exemption for micro, small and medium enterprises’ with annual sales below RM50mil is welcome, as it provides a runway for them to improve their business model and productivity to better absorb future minimum wage increases,” she noted.
Wong & Partners Employment & Compensation Senior Associate, Grace Chai said the RM2,500 benchmark for semi-skilled workers is a step in the right direction.
“This again needs to be coupled with increased productivity and skills development to protect against wage compression and higher operating cost.”
