Malaysia’s Progressive Wage Policy (PWP) is a game-changing initiative aimed at improving income growth and addressing wage stagnation, particularly for low- and middle-income workers.
With the rising cost of living and growing economic disparities, this policy serves as a mechanism to ensure that wages increase in tandem with productivity, benefiting both employees, with higher wages, and employers, with better skilled workers, in the long term.
What is the Progressive Wage Policy (PWP)?
The PWP is designed to establish a structured approach to wage increments by linking salary growth to skills development, work performance, and productivity levels. Unlike a conventional minimum wage model, which sets a baseline salary across industries, the PWP incentivises upskilling and career progression, encouraging workers to continuously improve their competencies to earn higher wages.
Although Malaysia’s new minimum wage increased to RM1,700 starting from February 2025, it still falls short of covering the actual cost of living. Bank Negara Malaysia estimates that a living wage for a single adult in urban areas is around RM2,700, meaning many workers will continue to struggle with rising costs of essentials like housing, food, transportation, and healthcare.
Inflation further weakens purchasing power, making it difficult for low-income earners to achieve financial stability. While the increase is a positive step, it remains insufficient without broader measures like wage growth tied to productivity, skill development, and stronger social protections.
Comparison Of Wage Credit Systems In Singapore And Malaysia
Malaysia’s flat-wage incentive is easier to implement and less administratively demanding, making it more accessible for small businesses. However, since wages vary significantly across regions and industries, a uniform incentive could over-benefit lower-wage sectors while being inadequate for higher-wage industries. This may temporarily reduce wage inequality but risks discouraging productivity improvements and long-term economic growth.
In contrast, a tiered co-funding model, like Singapore’s, would be more complex to administer but could better align wage incentives with sector-specific conditions. While a flat incentive may require higher government spending, a co-funding approach offers more flexibility and efficiency in wage distribution. The choice between these models will depend on Malaysia’s long-term economic and policy goals.
While Malaysia’s PWP includes a working committee to produce an annual wage guide, there is no clear indication that wage increments will be directly tied to skill development. This raises concerns about how training requirements will be integrated into wage growth, as structured skill progression is essential for ensuring that employees receive relevant training that enhances both their career prospects and productivity.
Lessons From The PWP Pilot Program With 1,000 Companies
Malaysia’s PWP follows a pay-per-performance model, aiming to benefit both employees and businesses by linking wage growth to productivity. A pilot program was launched from June 2024 to December 2024, involving 1,000 companies across five key sectors, including construction, manufacturing, wholesale and retail, automotive repairs, information and communication, and professional, scientific, and technical activities.
This trial phase allowed the government to assess the policy’s effectiveness in different industries before a broader rollout.
The pilot program’s success saw entry-level salaries rise from RM1,950 to RM2,200 and experienced employees’ salaries grow from RM2,200 to RM2,400. With continued expansion, Malaysia is on track to reach its RM2,700 median wage goal and achieve 3.7% annual productivity growth as outlined in the Twelfth Malaysian Plan.
How Will The Progressive Wage Policy Impact Malaysian Workers?
Malaysia’s PWP is targeted to expand in 2025 with a RM200 million budget, benefiting 50,000 workers. The initiative aims to tackle cost-of-living challenges and drive Malaysia towards a high-income economy. Employers will receive incentives to align entry-level salaries with occupation-based guidelines, while non-entry-level employees will see a minimum 6% annual raise.
Economy Minister Rafizi Ramli announced that the government is expected to allocate RM2 billion in incentives, benefiting 1.05 million workers and contributing RM3.3 billion to GDP. The policy is also projected to add RM790 million in EPF contributions, increase income tax revenue by RM1.8 billion, and create 37,529 new taxpayers in its first year. This move marks a major step towards closing wage gaps and improving Malaysia’s private sector salaries.
How Employers Will be Affected By The Progressive Wage Policy
Malaysia’s PWP brings both opportunities and challenges for businesses. On the plus side, registered companies especially MSMEs get financial incentives to help with salary adjustments for entry-level and skilled workers.
This makes it easier to offer fair wages and improve employee financial stability. However, MNCs and government-related entities won’t qualify for these incentives, as they’re expected to provide competitive salaries on their own.
Employers now have to follow new wage guidelines, considering factors like industry trends, inflation, and labor intensity to ensure fair salary increases. While PWP can help retain talent and boost efficiency, some MSMEs may struggle with balancing higher wages and training costs, which could squeeze profits. That’s why government support is crucial to help smaller businesses transition smoothly and manage wage growth and skills upgrading without too much financial pressure on MSMEs.
Will The Progressive Wage Policy Benefit Everyone?
Malaysia’s PWP is a bold step towards improving wages and addressing income disparities, but its success will depend on careful implementation and long-term sustainability. While the policy offers financial incentives for businesses and structured wage growth for workers, challenges remain, particularly in ensuring wage increases align with skill development and productivity.
The pilot program’s positive results suggest potential benefits, but concerns about cost-of-living gaps, employer adaptation, and economic impact still need to be addressed. As Malaysia moves forward with the 2025’s plan for PWP expansion, continued government support, clear skill progression pathways, and effective industry collaboration will be essential in making this initiative a lasting success.
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