Economist says many workers unable to save or achieve decent standard of living, calls for location-based models and productivity measures
PETALING JAYA: Despite the recent increases in minimum wage, many workers in high-cost urban states continue to struggle, particularly in Kuala Lumpur, Selangor, Penang and Putrajaya, according to an economist.
Universiti Teknologi Mara Department of Economics and Financial Studies senior lecturer Dr Mohamad Idham Md Razak said the gap between current wage levels and the actual cost of living in major cities remains significant, especially for lower and middle-income households.
“While minimum wage provides a basic income floor, it often falls short of covering essential urban expenses such as housing, transport, childcare, food, healthcare and the ability to save modestly,” he told theSun.
Mohamad Idham noted that although the extent of the gap varies across households, many urban workers are only able to meet basic needs, with little room for savings or upward mobility.
This reality, he said, underscores the importance of complementing wage policies with broader cost-of-living and productivity-enhancing measures.
He pointed out that a key limitation of the minimum wage system is its uniform national structure, which does not account for differences in living costs across regions, household sizes or urban-rural divides.
“From an economic perspective, minimum wages are simpler to administer and enforce, but they are blunt instruments. A living wage model, by contrast, is anchored to the actual cost of achieving a basic but decent standard of living. It is more precise, but also more complex to implement.”
As a result, relying solely on minimum wages may leave substantial segments of the workforce still struggling to cope with high living costs in urban centres, he said.
The national minimum wage increased to RM1,700 per month from RM1,500 in 2025 under the Minimum Wages Order 2024, designed to boost income levels.
Addressing concerns that higher wages could increase business costs and lead to job losses, Mohamad Idham said international evidence suggests otherwise, provided wage increases are moderate and well-calibrated.
“Many firms respond by improving productivity, making modest price adjustments or benefiting from lower employee turnover,” he said, adding that large-scale unemployment is not an automatic outcome of wage increases.
In the Malaysian context, he stressed that any move towards higher wages should be gradual and supported by targeted measures such as assistance for small and medium enterprises, automation incentives and productivity upgrades.
“The key is careful phasing rather than abrupt, large increases.”
Mohamad Idham also said a location-based living wage could help narrow income inequality by ensuring wages better reflect local living costs, particularly in expensive urban areas.
Higher disposable incomes among lower-wage workers would likely strengthen domestic consumption, which could stimulate business activity and job creation over time, he said.
However, he cautioned that such a system must be designed carefully to avoid discouraging investment in higher-cost regions or creating excessive administrative burdens.
He said the first concrete step should be the development of a transparent, data-driven living wage benchmark for different regions, based on regularly updated cost-of-living baskets.
“This should be accompanied by structured dialogue with employers, worker representatives and industry groups to agree on a realistic transition path.”
Mohamad Idham added that a pilot programme or phased rollout, combined with productivity-enhancing support for businesses, would help ensure that any move towards a living wage framework is both economically sustainable and socially credible.
Recent data from the Department of Statistics Malaysia on the 2024 Basic Expenditure of Decent Living Index shows that Selangor recorded the highest indices across household sizes, while Kelantan, Kedah, and Perlis were among the lowest.
