KUALA LUMPUR, March 31 — Malaysia must strengthen the institutions that shape how wages are set between employers and employees to more meaningfully raise incomes and boost purchasing power.
Bank Negara Malaysia (BNM), in its Economic and Monetary Review 2025 released today, said the minimum wage, which was introduced in 2013, has not proportionally raised wages for workers in the middle of the pay distribution.
“To support broader, more durable income growth, Malaysia will need to further develop its wage-setting institutions beyond the minimum wage,” it said.
The central bank said international experience shows that complementary mechanisms, such as wage guidelines, living wage standards and coordinated wage-setting, can link wage growth to national priorities like productivity, competitiveness and price stability.
“For example, Japan’s Shunto system is an economy-wide process that helps anchor wage expectations and link wage increases to broader macroeconomic conditions,” it said.
BNM said adapting these principles to Malaysia’s context would rebalance bargaining power and ensure rising productivity consistently translates into higher incomes for workers.
Meanwhile, it said that to maintain low and stable inflation, supply-side policies should be established to raise productive capacity.
The central bank said investment in infrastructure and funding for the research and development of high-growth, high-value sectors helps with expanding domestic production, thus keeping the prices of essential goods affordable.
Externally, it said, government agencies should work closely with industry stakeholders to diversify food product sources and mitigate 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,” it said.
BNM added 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.
“It must be enabled through reforms that raise national savings, strengthen social support systems and increase productivity through targeted capital investments,” it said.
According to BNM, a key priority is to continue broadening retirement savings coverage, especially 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,” it said.
It added that these policies may temporarily come at the cost of lower short-term income and consumption, but they improve retirement adequacy and reduce vulnerability to income shocks in the long run.
It also said pooled savings would need to be strategically intermediated into sectors with strong productivity spillovers under various national plans.
“Such investments can raise Malaysia’s capital-to-labour ratio, which in turn supports labour productivity growth and sustained real wage growth, even as the labour force contracts,” BNM added.
