MSME minimum wage rise exemption poor deal

By the Editorial Team · Friday, October 2, 2026

Malaysia’s government has exempted micro, small, and medium enterprises (MSMEs), which employ nearly half the workforce, from a planned minimum wage increase to RM2,000, citing concerns over their capacity to handle higher labor costs. This exemption raises fears among economists and industry experts that wage growth will be uneven, potentially leading to worker turnover and undermining efforts to reduce income inequality and boost domestic demand.

The Malaysian government’s decision to exempt micro, small, and medium enterprises (MSMEs) from a proposed minimum wage increase has drawn concern from economists and industry watchers, who warn that nearly half of the country’s workers could be excluded from wage growth efforts.

Data from the Statistics Department show that MSMEs employed about 8.09 million people in 2025, representing 48.7% of Malaysia’s total workforce. The current minimum monthly wage is RM1,700, a figure set in August 2025 following previous increments from RM1,100 in 2019 to RM1,500 in 2022. The government is currently evaluating raising this rate to RM2,000.

Last Saturday, Prime Minister Datuk Seri Anwar Ibrahim criticized the wage situation, highlighting the disparity between corporate profits and worker earnings. Yet, a Cabinet decision announced earlier this week exempts MSMEs from the new minimum wage hike, citing concerns about their ability to absorb higher labour costs. Instead, the government plans to explore alternative measures such as wage subsidies under the Progressive Wage Policy to support income growth within the MSME sector.

Critics argue the exemption undermines the intended impact of raising wages nationwide. Charles Santiago, director of Monitoring Sustainability of Globalization, pointed to MSMEs’ strong economic performance, noting their 5.7% growth in gross domestic product in 2025, surpassing the overall economy’s 5.2% expansion. Labour productivity in MSMEs also rose 4.1% that year. Santiago added that workers currently receive about RM34 for every RM100 produced by the economy, short of the RM40 target set by the government’s 12th Malaysia Plan for 2025.

Experts suggest other fiscal approaches could alleviate pressure on MSMEs without excluding their employees from wage increases. Santiago referenced South Korea’s 2018 model, where the government provided direct subsidies to smaller firms to offset wage hikes, enabling them to keep staff while maintaining a uniform minimum wage for all workers.

UOB senior economist Julia Goh warned the exemption could prompt labour mobility challenges, as workers may seek higher pay elsewhere, potentially causing turnover issues for exempted firms. She emphasized that enhancing MSME productivity should be a focus to support sustainable wage increases.

Dr. Liew Chee Yoong, finance associate professor at UCSI University Malaysia, supported the use of targeted wage subsidies combined with productivity grants and training initiatives. He stressed the importance of a clear implementation timeline and conditional assistance based on verified wage improvements to prevent widening income disparities between smaller and larger employers.

Sunway University economics professor Yeah Kim Leng noted that while the exemption may preserve MSME employment in the short term, it weakens the broader economic benefits of minimum wage hikes, such as poverty reduction and increased domestic demand. He proposed tailored incentives and tax relief measures for lower-performing MSMEs to ease transitions and encourage investment in skills and automation.

Despite low unemployment at roughly 3%, stakeholders highlight persistent wage challenges. Median wages remain below RM3,000, with a skew towards lower income brackets, and rising living costs have further eroded purchasing power. Experts call for active labour market policies and regulatory support to foster faster, more inclusive wage growth across Malaysia’s economy.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.