Economist calls for gradual 65 per cent increase in minimum wage over next decade

KUALA LUMPUR - The government must further adjust and fine-tune the minimum wage policy to effectively improve the lives of low-income earners, said Prof. Dr. Barjoyai Badai, an economist at Universiti Sains dan Teknologi Malaysia.

He noted that to balance workers' needs with business requirements and broader economic considerations, certain areas need improvement, such as a gradual increase in the minimum wage by 65 percent over the next 10 years.

"This approach aims to balance the needs of workers with employers' concerns over rising business costs. However, some experts believe the minimum wage should be raised more significantly to provide a truly sufficient income to cover the cost of living," he said in a recent statement.

During the tabling of Budget 2025 on Oct 18, Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim announced that the government has agreed to raise the minimum wage from RM1,500 to RM1,700 per month, effective Feb 1, 2025.

The government also decided to delay the implementation of the minimum wage for employers with fewer than five employees to Aug 1, 2025.

Barjoyai suggested that adopting a Universal Pay Policy could ensure that minimum wage levels are sufficient to cover living costs for workers in high-cost urban areas like Kuala Lumpur.

He explained that the government could also offer tax incentives to small businesses, to support small and micro-enterprises and help offset increased labour costs.

"Exempting young, inexperienced workers from minimum wage requirements may also be necessary, as they are often at the beginning of their careers and focused on gaining valuable work experience, which could be more beneficial for their long-term career development than a higher starting salary,” he said.

He further emphasised that the government should enforce and monitor the minimum wage policy effectively by conducting regular workplace inspections and penalising violations across all sectors and regions.

He added that a minimum wage increase would likely benefit foreign workers more, as they typically accept the established wage rate upon arrival in Malaysia and tend to maintain a similar lifestyle and cost of living to what they had in their home countries.

"Every additional portion of their wages will be seen as a bonus, which they will send back to their home countries. Over RM70 billion is remitted abroad each year. It is estimated that for every RM100 increase in the minimum wage, approximately RM4 billion will be transferred out of the country.

"Thus, an RM200 increase in the minimum wage is expected to boost remittances by RM8 billion. This time, however, we may be able to limit this outflow because Malaysia is the first country to introduce the Employees Provident Fund (EPF) contribution system for foreign workers,” he said.

Barjoyai elaborated that foreign workers are required to contribute 11 percent of their base salary to the EPF as employee savings, while employers must contribute an additional 13 percent of the worker’s gross salary as the employer's share.

Barjoyai also acknowledged that in the short term, the minimum wage policy may impose a significant burden on employers, particularly micro and small businesses, due to their unstable business conditions and the need to control overhead costs to remain sustainable.

Meanwhile, Human Resources Minister Steven Sim Chee Keong recently advised employers not to use the new minimum wage rate as a starting salary for all employees, including graduates.

Sim highlighted that the increase in the minimum wage from RM1,500 to RM1,700 is intended for basic workers with low academic qualifications and skill levels, including those in 3D sectors (dirty, dangerous, and difficult).

"We recommend that employees be compensated fairly based on their skills or academic qualifications. The minimum wage should not serve as a baseline for starting salaries across all employee groups. This adjustment targets the most basic level of workers, namely the 4.35 million of whom are still earning below RM1,700,” he said.

Sim added that the adjustment period provided is reasonable and sufficient, and he reminded employers to comply with the new directive.

He also urged anyone, especially employees aware of labour law violations, including those related to the minimum wage, to report them to the Ministry of Human Resources, particularly the Department of Labour, so that appropriate action can be taken.

The minimum wage increase, he noted, is not intended to burden employers; rather, it aims to enhance workers' purchasing power, which will indirectly boost economic benefits for local entrepreneurs and small businesses. - BERNAMA