More broad-based adoption of progressive wage policy needed to realise full potential

Published on 15 May 2024.

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The Progressive Wage Policy (PWP) has the potential to play a pivotal role in reshaping Malaysia’s labour market, where existing policies like the minimum wage and the Productivity-Linked Wage System have been unsuccessful.

It is no secret that the domestic labour market has been dogged by low wages, partly attributable to the distortion and suppression of wage levels from the extensive prevalence of low and semi-skilled jobs and the influx of low-skilled foreign workers over the years. The national median wage of RM2,600 as of September 2023 is sitting below the latest living wage level of RM3,047. Compounding this, over two-thirds of working graduates in Malaysia earn a monthly wage of RM3,000 and below.

A progressive wage system will help low-income Malaysians sustain their livelihoods while also providing them with better career paths. Most importantly, a progressive wage allows them to meet accelerating living costs and live with dignity. On a macro level, PWP, which links wage increases to training and upskilling, can help boost labour productivity. This will allow the country to move up the value chain and graduate from the middle-income trap in which it has been for more than a decade.

We welcome the implementation of the policy, given the potential benefits from a restructured wage system. We hope the PWP mechanism will be further improved to unlock its full potential. The policy’s current voluntary nature could limit prospective gains if employers’ response to its adoption is poor. In the long run, the PWP’s implementation has to be made institutionally compulsory to ensure that the targeted working population benefits from it. 

As PWP is tied to productivity improvement, there must be a transparent benchmark for policymakers and employers to measure the productivity growth of targeted workers at national and sectorial levels. Complementing PWP with demand-side policies such as an employment policy to reduce reliance on low-skilled foreign workers and supporting employers in their adoption of technology would create more high-skilled job opportunities with higher pay. 

Labour market reformation does not happen overnight. It requires the collective and continuous support of relevant parties like policymakers, employers and trade unions. A major step towards a more progressive and equitable society, we believe PWP could be a game changer to advance the Malaysian economy should it be fully utilised.

Read our full thematic research report on PWP here.


Analytical contacts
Tan Wan Ying
(603) 3385 2540

Woon Khai Jhek, CFA
(603) 3385 2512

Media contact
Sakinah Arifin
(603) 3385 2500


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Publication Date Published Category
Progressive Wage Policy - A game-changer to resolve Malaysia’s labour market predicament? 15-May-2024 Economic Commentaries View PDF