PETALING JAYA: Complementary policies must be put in place to prepare small and medium enterprises (SMEs) to cope with the RM1,700 minimum wage increase, says Dr Monna Ong Siew Siew (pic).
The MCA Public Policy and People’s Livelihood Research Advisory Committee chairperson said the effectiveness of this policy would depend on how well businesses are able to adapt to the higher wage.
She said a favourable policy would ensure the higher minimum wage contributes to sustainable economic growth without causing significant inflation or job losses.
“The government’s proactive approach in implementing complementary policies, such as productivity-enhancing measures and support for SMEs, is crucial to mitigate the potential downsides of the wage hike,” she said in a statement yesterday.
On Friday, Prime Minister Datuk Seri Anwar Ibrahim announced the increase in the minimum wage to RM1,700 from RM1,500 when tabling Budget 2025.
Ong said the new minimum wage would have significant implications for workers, industries and the national economy.
She added that the increase in minimum wage would also present challenges for employers, who may encounter increased costs, and for the economy, which could be susceptible to inflationary pressures.
“Historically, the minimum wage in Malaysia has experienced substantial increases, first rising from RM1,200 to RM1,500, a 25% jump, and now further to RM1,700.
“This represents a cumulative rise of 41.67%. The increase aims to provide workers with higher disposable incomes and potentially improve their living standards.
“Higher labour costs could force businesses to raise prices, contributing to inflationary pressures and making it harder for them to remain competitive,” she added.
Ong said wage hikes in Malaysia have often been linked to inflation, adding that rising inflation could diminish the purchasing power of workers.
In 2022, following the RM1,500 minimum wage implementation, the Consumer Price Index (CPI) rose by 3.3%, compared to 2.5% in 2021.
“While inflation eased somewhat in 2023, food inflation remained a key contributor, potentially offsetting workers’ wage gains.
“This trend illustrates that wage increases alone may not guarantee better living standards if inflation continues to erode purchasing power,” she said.
In developing countries, Ong said large minimum wage hikes often led to unintended consequences such as higher unemployment and a shift of jobs from the formal to the informal sector.
She said that using a phased approach when implementing the wage increase would allow businesses, particularly SMEs, to adjust their financial planning.
“Financial assistance, such as tax incentives, subsidies or low-interest loans, could help SMEs manage higher labour costs while investing in productivity-enhancing technologies.
“Additionally, investment in workforce training programmes can help businesses improve productivity to offset wage increases.
“The Malaysia Productivity Corporation (MPC) should continue coming up with initiatives aimed at enhancing productivity across industries to support the transition,” she added.
