Murray Hunter
PRIME Minister Datuk Seri Anwar Ibrahim’s Budget 2027 announcement that the national minimum wage will rise from RM1,700 to RM2,000 in June 2027 was widely welcomed as a step toward better living standards.
Yet the simultaneous exemption for micro, small and medium enterprises (MSMEs) with annual turnover below RM50 million has sparked sharp criticism.
This carve-out risks creating a two-tier labour market that entrenches inequality rather than reducing it.
MSMEs form the backbone of Malaysia’s economy, accounting for roughly 94–97% of all businesses and employing about 8.09 million people, or nearly half the national workforce.
By allowing these firms to continue paying the old RM1,700 floor while larger companies must meet the new RM2,000 rate, the policy effectively establishes different legal minimums for the same work.
Workers in shops, workshops and small factories will remain stuck at the lower level, while their counterparts in bigger firms receive an immediate RM300 monthly increase.
Opposition leader Datuk Seri Hamzah Zainudin has warned that this will produce “workers of two classes” and leave millions of low-income families further from escaping poverty.
The RM300 gap will also distort the labour market.
Employees at exempted MSMEs have a clear incentive to leave for larger employers offering the higher statutory wage.
Smaller businesses may then face a talent drain, forcing them either to raise pay voluntarily or risk operational disruption.
At the same time, jobs that remain at RM1,700 become less attractive to local workers, potentially increasing reliance on foreign labour and exerting further downward pressure on wages at the bottom end.
Economists have noted that low-wage jobs are concentrated precisely in the micro and small segment now exempted, so the policy’s benefits are weakest where they are most needed.
Supporters of the exemption, including the Malaysian Employers Federation, argue that many MSMEs operate on thin margins and cannot absorb a sudden 17.6% wage hike without risking closures or layoffs.
The government presents the delay as temporary breathing room while firms adjust.
Yet this short-term protection comes at a long-term social cost.
It widens the income divide and reinforces Malaysia’s emerging K-shaped recovery, in which higher-income groups and larger corporations pull ahead while lower-wage workers lag.
Do better alternatives exist?
Conditional wage subsidies channelled through PERKESO could co-fund increases for MSMEs that invest in productivity, training or automation.
Expanding the Progressive Wage Policy into a more mandatory framework that links salary rises to upskilling would achieve higher pay without imposing an immediate cliff-edge burden.
A uniform minimum wage paired with targeted support for the smallest firms would protect both workers and businesses more effectively.
Malaysia cannot build a high-income, inclusive economy by leaving nearly half its workforce on a lower legal floor.
The MSME exemption may shield some employers today, but it risks deepening inequality tomorrow.
A single national minimum wage, supported by smart transitional measures, remains the fairer and more sustainable path.
Malaysia’s GINI Index is set to rise even further. (The GINI coefficient, or Gini index, is the most commonly used measure of inequality). – October 14, 2026
