Help Businesses Scale Up To Raise Wages, Says Economist

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Malaysia should focus on helping businesses grow and scale if it wants to achieve higher wages for workers, rather than relying on a single national salary target, said economist Dr Carmelo Ferlito.

The chief executive officer of Center for Market Education Sdn Bhd said policymakers should remove barriers that prevent businesses from expanding, including regulatory compliance costs, licensing complexity and policies that could discourage firms from growing.

He said making it easier for businesses to merge, raise capital and expand would help create the conditions needed for wages to rise sustainably.

“Get the structure right and wages will follow. Get it wrong, and no target, whether RM3,500 or any other number, will deliver a decent living,” he told TRP in an email interview.

Ferlito was responding to Economic Minister Akmal Nasrullah Mohd Nasir’s assertion that a median monthly salary of RM3,500 may still not be enough to guarantee a decent standard of living for every household.

READ MORE: RM3,500 Median Wage May Still Not Be Enough For Malaysians, Says Akmal

He said the distinction between Malaysia’s minimum wage and median wage was also important in understanding the government’s RM3,500 median monthly wage target by 2030.

He explained that the minimum wage was a legal floor determined by the government, while the median wage was an outcome of millions of decisions made by employers and workers.

According to Ferlito, wages function as prices in the labour market and provide signals about worker productivity, labour shortages and demand.

He cautioned that attempts to administratively influence wages, whether through minimum wage increases that outpace productivity or political pressure on employers to meet salary targets, could distort the labour market.

He said businesses could respond by reducing their reliance on local workers, shifting towards informal employment, delaying hiring or, in more severe cases, shutting down.

“The people the policy was meant to help are often the first to pay the price.”

No Issue With Setting A Median Salary Target

Ferlito, however, said the RM3,500 figure itself was not necessarily problematic.

In nominal terms, he said, reaching the target from the current median wage would require annual growth of roughly 4%, which he viewed as achievable.

The key question, he said, was whether wage growth would be supported by higher productivity or simply driven by inflation and regulation.

“Only the first makes Malaysians better off,” he said, adding that a higher wage figure alone did not guarantee a decent standard of living.

On what would constitute a realistic wage target for 2030, Ferlito said policymakers should avoid simply replacing one administrative target with another.

Instead, he said greater attention should be paid to the structure of Malaysia’s business sector, particularly the dominance of microenterprises.

He pointed out that around 78% of Malaysian micro, small and medium enterprises (MSMEs) are microenterprises, while MSMEs account for almost 98% of businesses.

Such small firms typically have limited capital, access to technology and bargaining power, while operating on thin margins, he said.

This makes it difficult for them to invest in automation, employee training and management systems that could increase productivity and support higher wages.

“If policymakers want the median to rise, the factors to focus on are therefore removing the barriers that keep firms small, making it easier for businesses to merge, raise capital and grow, and letting wage-setting respond to productivity and regional conditions rather than a single national figure.”

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