PETALING JAYA: The government is urged to closely monitor the implementation of the RM1,700 minimum wage outlined in Budget 2025 to address any potential negative outcomes.
Universiti Teknologi Mara Malaysian Academy of SME and Entrepreneurship Development coordinator Dr Mohamad Idham Md Razak said while the increase aims to uplift workers’ living standards, it may lead to unintended consequences such as higher operational costs for businesses, particularly small and medium enterprises (SME), which could result in layoffs, reduced hiring, or increased prices for goods and services.
“Close monitoring would help the ministry assess the overall economic impact, ensure proper enforcement, and implement support measures for businesses and workers facing challenges from the wage adjustment,” he said.
On Oct 18, the government agreed to raise the minimum wage from RM1,500 per month to RM1,700 per month, effective February 2025, with enforcement for employers with fewer than five employees postponed until August 2025.
Mohamad Idham said the increase in the minimum wage will encourage inflation, primarily by driving up the price of commodities and services.
He said the extent of the transfer will depend on the competitiveness of the sector, demand-elasticity of price, and cost structure, for instance, low labour-intensive sectors such as retail, hospitality, and manufacturing suffer the most from labour cost increase.
“Companies that are less competitive, or that supply products we require, and consumers have fewer options, will also have more discretion to raise prices.
“When wages increase, employers may raise their prices to maintain profit margins. Yet the total effect on inflation is influenced by a range of factors including how large the wage increase is, the economy and how businesses modify their pricing policy.”
Mohamad Idham said wage increase may also mean a loss of employment or slow hiring, especially for small companies that are working on very slim margins.
Additionally, he said SMEs can be particularly vulnerable since they do not have the same financial flexibility as large companies to allow for sudden payroll increases without destroying their
financial stability.
“Employers or business owners should review their operational costs and improve efficiency, such as by investing in automation or training staff for higher productivity. Reassessing pricing strategies to maintain profitability without overburdening customers is crucial.”
Mohamad Idham said the proposed wage rise would have far-reaching implications for
long-term targets including lowering income inequality and driving domestic demand.
He added that higher wages give lower-income populations more purchasing power, which can narrow the income divide and increase their living standards.
“The higher the disposable income, the higher the consumption spending that boosts domestic demand, and stimulates economic growth. This wage regime would eventually produce a fairer economy and more robust internal market strength, driving greater economic stability and expansion.”
