Kuala Lumpur: Implementing strategic, innovation-driven industrial policies and labour market reforms can significantly increase household income by enhancing productivity, creating more job opportunities, and ensuring fair compensation, according to Bank Negara Malaysia (BNM).
According to BERNAMA News Agency, the central bank emphasized that reforms should aim to enhance labour market flexibility by easing restrictive labour laws and encouraging workforce mobility. This would involve strengthening labour market institutions while promoting policies that ensure fair compensation aligned with worker productivity. BNM noted that improving skills standardisation would facilitate easier transitions between jobs and industries for workers.
Moreover, BNM highlighted the role of technology in enabling flexible work arrangements, which could accommodate diverse workforce needs and increase labour force participation, particularly among women. These recommendations were detailed in BNM’s Annual Report 2024 as part of efforts to meaningfully raise incomes and address cost-of-living pressures.
The central bank further noted that while direct measures like price controls and subsidies can provide short-term financial relief and help stabilize essential goods’ prices, they should be used sparingly. Such measures are fiscally costly and unsustainable. Additionally, they may cause distortions that hinder natural price adjustments, potentially harming the economy in the long term. In this context, BNM suggested that countercyclical macroeconomic policies, including monetary and fiscal measures, along with structural reforms, must work together to keep inflation low and stable.
BNM also pointed out that fiscal policy could be more targeted to help specific groups manage rising living costs, through targeted subsidies or tax breaks for households. Furthermore, in the event of supply disruptions caused by adverse weather, the government could provide direct cash assistance to affected households to supplement their income.
The bank stressed the importance of fiscal policy in enhancing the economy’s productive capacity. It suggested that the government invest in infrastructure, introduce favourable tax policies for high-growth, high-value industries, and promote research and development initiatives.
BNM also discussed the issue of price pressures stemming from market structures that raise costs, which make the economy more vulnerable to shocks. Market inefficiencies could lead to monopolistic practices and reduced competition, allowing large firms to raise prices without improving quality. To tackle this, BNM recommended structural reforms to boost productivity, enhance competition, and strengthen economic resilience.
The central bank concluded that these reforms require long-term adjustments to policies, institutions, and economic frameworks, with the ultimate goal of fostering a vibrant economic environment that encourages competition, efficiency, and higher income growth. At the same time, these reforms aim to keep inflation low and stable, helping households better cope with future cost-of-living challenges.