Kuala lumpur: Malaysia must strengthen the institutions that shape how wages are set between employers and employees to raise incomes and strengthen purchasing power meaningfully. Bank Negara Malaysia (BNM), in its Economic and Monetary Review 2025 released today, said that the minimum wage, which was introduced in 2013, has not proportionally raised wages for workers in the middle of the pay distribution.
According to BERNAMA News Agency, the central bank noted that to support broader, more durable income growth, Malaysia will need to further develop its wage-setting institutions beyond the minimum wage. The central bank highlighted that international experience shows that complementary mechanisms, such as wage guidelines, living wage standards, and coordinated wage-setting, can help link wage growth to national priorities like productivity, competitiveness, and price stability.
BNM cited Japan's Shunto system as an example of an economy-wide process that helps anchor wage expectations and link wage increases to broader macroeconomic conditions. Adapting these principles to Malaysia's context would help rebalance bargaining power and ensure that rising productivity consistently translates into higher incomes for workers.
Meanwhile, BNM emphasized that in order to maintain low and stable inflation, supply-side policies should be implemented to raise productive capacity. The bank suggested that investment in infrastructure and funding for the research and development of high-growth-high-value sectors would help expand domestic production, thus keeping the prices of essential goods affordable.
Externally, BNM stated that relevant government agencies should collaborate closely with industry stakeholders to diversify sources of food products to mitigate future supply disruptions. Such efforts would enable domestic importers to respond more nimbly by securing purchase orders from alternative supplies, helping to keep food inflation low and stable.
Additionally, BNM noted that policies must actively harness the 'second demographic dividend,' defined as productivity-enhancing economic gains that arise when an ageing population accumulates more savings, wealth, and human capital. This must be enabled through reforms that raise national savings, strengthen social support systems, and increase productivity through targeted capital investments.
A key priority, according to BNM, is to continue broadening retirement savings coverage, particularly among informal workers such as micro-entrepreneurs and gig workers. Ongoing measures such as default Employees Provident Fund (EPF) enrolment for platform-based workers, matching contributions for lower-income informal workers, and simplified contribution channels through e-wallets and payment platforms would directly strengthen their long-term financial buffers.
BNM acknowledged that these policies may temporarily result in lower short-term income and consumption, but they aim to improve retirement adequacy and reduce vulnerability to income shocks in the long run. The central bank concluded that pooled savings would need to be strategically intermediated into sectors with strong productivity spillovers under the various national master plans, which can raise Malaysia's capital-to-labour ratio, supporting labour productivity growth and sustained real wage growth even as the labour force contracts.