KUALA LUMPUR (Oct 10): Under the Twelfth Malaysia Plan (12MP), the government has set a target for the compensation of employees (CE) to gross domestic product (GDP) ratio to reach 40% by 2025. While progress has been made, the share still lags behind the target, highlighting the ongoing challenge of ensuring that economic gains are more evenly distributed among workers.
In 2024, Malaysia’s GDP grew by 5.9% to RM1.93 trillion, supported by growth across all income components. The CE component improved by 6.1% to RM648.5 billion, driven by strong employment and wage growth, productivity gains, and the early rollout of the Progressive Wage Initiative. As a result, the CE-to-GDP ratio rose to 33.6%, but it remains short of the government’s 40% target.
The Economic Report 2025/2026 by MOF showed that the government is targeting the CE to grow by 7.1% in 2025, driven by the new RM1,700 a month minimum wage policy, wider adoption of the Progressive Wage Policy, and civil service salary adjustments.
The overall labour income share is expected to reach 34.4% in 2025, driven by income from services (62.5%) particularly from wholesale & retail trade, food & beverage and accommodation, and other services (including public services) industries. Meanwhile, the manufacturing sector, mainly from electrical, electronics and optical products, contributes 22.1%.
Lowest unemployment rate in a decade
For the first half of 2025, Malaysia’s labour market expanded by 2.4% to 17.3 million persons, while total employment grew 2.6% to 16.8 million persons. Consequently, the unemployment rate fell to 3%, or 520,100 persons, marking the lowest level in a decade.
The services sector continued to dominate employment, accounting for 66.7% of total jobs, followed by manufacturing (16.2%) and agriculture (8.8%).
For the full year, the labour market is expected to expand further, underpinned by increasing demand for talent as companies scale up operations and investments.
This momentum will be supported by greater digital integration, tourism recovery; and meetings, incentives, conferences, and exhibitions (MICE)-related activities during Malaysia’s 2025 Asean chairmanship. The unemployment rate is projected to remain stable at 3%.
Labour productivity per worker improved by 2.7% to RM49,753 in the first half of 2025, largely due to the construction sector following the completion of infrastructure projects, including the electric train service (ETS) southbound track and system.
For the full year (2025), labour productivity is expected to grow by 2.5% to exceed RM101,700, driven by continued investments in skills, digitalisation, and business modernisation. The construction sector is projected to post the strongest productivity growth at 8.9%, followed by manufacturing (2.8%) and services (2.4%).
Despite strong employment and wage growth, Malaysia still faces the challenge of translating economic expansion into higher income shares for workers.