PETALING JAYA: Malaysia risks creating a two-tier labour market where workers doing the same job are paid different minimum wages depending on their employers’ annual sales, an economist observed.
Centre for Market Education CEO and economist Dr Carmelo Ferlito said the exemption of micro, small and medium enterprises (MSMEs) with annual sales below RM50 million from the new RM2,000 minimum wage could leave a significant number of low-paid workers excluded from the increase.
“Yes, formally Malaysia now has two minimum wages for the same work, depending on who the employer is,” he said.
Budget 2027, tabled by Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim on Friday, raises the minimum wage from RM1,700 to RM2,000 from June 2027, with more than four million workers expected to benefit.
However, MSMEs with annual sales below RM50 million will be exempted to give them time to adjust their business models.
Ferlito said MSMEs account for about 96% to 97% of Malaysian businesses and employ approximately 8.09 million people, or nearly half the workforce.
He said the exemption could significantly limit the policy’s reach because low-paying jobs were concentrated in micro and small businesses, while larger companies generally already paid higher wages.
“Those are also the firms that already pay the most, so the floor bites least where it applies and is waived where it would bite most.”
However, Ferlito said the greater concern was that younger, lower-skilled and rural workers could be priced out of formal employment if their productivity did not justify the higher wage.
“The more important divide created by any minimum wage is between workers whose output justifies the mandated wage and workers who are priced out of formal jobs: the young, the low-skilled and those in rural areas.
“The exemption is the government admitting that a RM2,000 floor would have pushed many smaller employers, and their workers, into that second group,” he said.
He said the exemption exposed a fundamental weakness in the government’s approach to wage reform, arguing that higher wages could not be sustained without corresponding productivity gains.
Despite his concerns over unequal wage treatment, Ferlito defended the exemption as a necessary compromise to prevent smaller businesses from cutting jobs or reducing working hours.
“Given that the government insisted on raising the floor, the exemption is the lesser evil.
“A RM300 increase imposed on firms with thin margins, already facing higher SST, utility and compliance costs, would have meant job losses, cut hours and a shift to informal work.
“The workers it ‘leaves behind’ would have been the first to lose their jobs,” he said.
Ferlito also warned that the increase could push up consumer prices if larger businesses in labour-intensive industries passed their additional costs on to customers.
He said sustainable wage growth depended on businesses gaining better access to capital, adopting improved technology and developing a more skilled workforce, rather than relying on government-mandated increases.
He also urged the government to reduce taxes and compliance costs, encourage private investment and provide targeted financial assistance to low-income workers.