This article first appeared in Forum, The Edge Malaysia Weekly on November 24, 2025 - November 30, 2025

The government can be complimented for trying to implement a progressive wage system in this country and, for this purpose, several campaigns have been initiated.

Concern for implementing a wage system that is supportive of economic and social development as a whole, as well as promoting skills development of the workforce, was announced in parliament in 2024 by the prime minister. Wage matters are attended to by a high-level committee in the Ministry of Human Resources and this panel is served by those dealing with human resources development and management in the country.

To be sure, the country has tried to develop several approaches to define wages for both the public and private sectors, aligning with human capital and industrial development needs.

Concepts such as basic wage and living wage have been considered to define a more decent wage for Malaysians, covering life’s essentials, promoting skills development and encouraging productivity. The basic wage is currently RM1,700 per month, while Bank Negara Malaysia once estimated a living wage at RM4,000 per month for an average family.

There has also been concern from employers’ organisations that the living wage developed then was considered high and would bring about rising cost of production with its consequent implications for Malaysia’s export competitiveness.

On the broader issue of wages, concern has been raised that reliance on low-cost technology has increased dependence on foreign workers from labour-surplus economies, indirectly suppressing domestic wages.

Be that as it may, we must not delay implementing the progressive wage system, which includes components naturally considered part of workers’ wages, especially at our stage of economic development, where skills drive economic transformation and productivity boosts competitiveness and investment appeal.

It cannot be denied that a progressive wage must ensure a reasonable standard of living, reflecting a society’s quality of life. This includes food, housing and basic services such as water, energy and transport. Surely, Malaysia’s workers today live beyond the modest two-room, one-toilet apartment with only a bicycle, which might have been typical in the early 1960s.

The next element to consider is each worker’s human capital, ranging from basic education to skills that classify them as technical or skilled workers, and up to higher academic qualifications for managerial and professional roles such as accountants, lawyers and engineers. Incorporating this element into the progressive wage naturally encourages continuous skill and talent development.

The third concern is worker productivity, observable at both individual and group levels. While productivity can be observed and, indeed, has long been taken into consideration, as reflected in bonuses, it is typically assessed annually. This could be adjusted to reflect monthly performance and incorporated into monthly wages.

Inclusion of the productivity element in the monthly wage is necessary, as it can incentivise all workers to be hard-working and innovative to help a continuous rise in productivity and quality of products based on creativity and innovation.

Finally, the fourth element of a progressive wage is the cost of living. While it is fair to include the cost of living, policymakers must avoid encouraging wage indexation, which in 1960s Latin America made labour costly and the overall economy less competitive. Cost of living should be recognised but managed cautiously, ensuring it does not dominate collective bargaining between workers’ unions and employers. Workers’ focus should remain on skill acquisition and productivity improvement rather than merely adjusting wages for consumer price increases.

These four elements are essential in developing a progressive wage system that supports continuous productivity improvements while addressing workers’ basic needs and rising living costs. Incorporating them fosters lasting worker-employer relations and helps prevent conflicts that could undermine a healthy industrial relations climate, which is critical to maintain.

Tan Sri Dr Sulaiman Mahbob is an adjunct professor at the International Institute of Public Policy and Management, Universiti Malaya

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