What factors contribute to low salaries in Malaysia?

Low salaries in Malaysia are often discussed as if they are the product of a single decision, a single policy, or a single group of actors. In reality, wage outcomes are the final expression of how an economy is structured, how firms compete, how workers move through the labor market, and how effectively productivity gains translate into pay. This is why wage frustration can persist even in years when official statistics show median wages rising. The question is not simply whether wages should increase, but why so many workers experience a ceiling that feels difficult to break through.

A useful way to approach Malaysia’s wage challenge is to start from the nature of the jobs the economy creates. When employment growth concentrates in activities where output per worker is limited, wages tend to move slowly. Parts of Malaysia’s economy are globally competitive, especially in export manufacturing and specific technology-linked supply chains. Yet a large share of workers are employed in domestic services and smaller enterprises, where scaling productivity is harder, processes are less automated, and value creation is more incremental. In such settings, firms can grow revenues without achieving a step-change in output per worker, and wage growth becomes modest because the underlying productivity engine is not accelerating across the broad base of employment. Wage performance, in other words, reflects not only national growth, but the quality and composition of the jobs being added and sustained.

Firm structure reinforces this dynamic. Malaysia has a large base of small and medium-sized enterprises that provide essential employment, but many operate with thin margins, limited technology adoption, and weak pricing power. When a business competes mainly on keeping costs low, wages naturally become one of the most constrained lines in the budget. This does not require employers to be indifferent or hostile to workers. It is simply what happens when the market position of a firm leaves little room to pay more without either raising prices, raising productivity, or changing the business model. If customers are sensitive to price and competition is intense, firms feel pressure to hold down labor costs. In that environment, pay increases become difficult to sustain unless they are paired with meaningful productivity improvements. Otherwise, higher wages can lead to reduced hiring, cuts in hours, or a shift toward less secure arrangements, especially for workers who already sit near the bottom of the wage distribution.

This is where informality and underemployment become central to understanding “low pay” as it is experienced day to day. Informal work often offers fewer protections, weaker bargaining leverage, and limited opportunities for skill development. Underemployment can show up as insufficient hours, unstable schedules, or work that does not fully use a person’s training and capabilities. When many workers are in positions where the job itself has a low ceiling, the labor market develops a shadow wage system that keeps earnings compressed even if headline measures suggest improvement. In practice, a worker’s monthly income depends not only on wage rates, but also on hours, predictability, and progression. If those elements are missing, official wage gains can feel distant from household reality.

Another structural factor is the mismatch between skills supply and the types of roles the economy produces at scale. Malaysia has expanded education access significantly, and more Malaysians now hold diplomas and degrees than in earlier decades. Yet a larger pool of qualifications does not automatically produce a larger pool of high-productivity jobs. If advanced roles remain concentrated in a limited number of sectors and locations, competition for those roles becomes intense, while many credentialed workers end up in positions that do not pay a strong premium for their education. This is how a country can simultaneously have rising educational attainment and persistent wage dissatisfaction. The issue is not only whether graduates are job-ready, though that matters. It is also whether employers are creating enough roles that demand higher-level skills and are willing to pay for them. Without that demand-side expansion, the labor market absorbs talent into lower-value work, and wages remain subdued because the economic structure does not reward skills broadly enough.

Bargaining power also shapes the wage ceiling, and it does so in ways that are often invisible. Pay depends on how credible a worker’s alternatives are, how transparent the labor market is, and how easily a firm can replace labor in a given role. Where job mobility is constrained by geography, caregiving responsibilities, transport limitations, or information gaps, workers negotiate from a weaker position. If employees cannot confidently move to a better offer, wage growth tends to be slow because firms do not face strong pressure to bid up pay. Collective bargaining can strengthen negotiating power, but in many labor markets, coverage is limited and wage-setting happens primarily at the firm level. That creates uneven outcomes: workers in high-demand sectors or large firms may see stronger wage progression, while others remain stuck in roles where pay rises are small and sporadic.

Malaysia’s reliance on large pools of lower-wage labor in selected industries adds another layer to the wage equation. The most important point here is market segmentation and incentives. If certain sectors can access a steady supply of workers willing to accept low wages, the immediate pressure to redesign jobs, automate tasks, or invest in productivity-enhancing technology is weaker. Over time, that can lock industries into labor-intensive methods, which then justifies low pay because output per worker remains limited. This is not a simple story of one group “taking” another group’s wages. It is a story about how labor availability can shape the investment choices firms make, and how those investment choices determine productivity and, ultimately, wage capacity. When an industry’s path to profitability depends on keeping labor cheap, wages do not rise significantly unless the industry shifts toward higher value-added production and more efficient processes.

Policy tools like the minimum wage are often placed at the center of wage discussions because they are visible and measurable. They matter, especially for workers at the lowest end of the income distribution, and they can help reduce extreme wage suppression. However, a minimum wage is primarily a floor, not a ladder. It can lift the bottom, but it cannot by itself create progression pathways, improve job design, or expand the number of high-productivity roles. If a labor market has many jobs that are structurally low value-added, raising the floor improves basic protection but does not necessarily solve the broader wage ceiling. In some cases, if productivity does not rise alongside wage floors, firms may respond by adjusting hiring, cutting hours, tightening performance demands, or shifting workers into more informal arrangements. The long-term solution has to include ladders: clearer pathways from training to employment, credible skill certification, and industry strategies that expand the share of jobs that can support higher pay sustainably.

Investment and innovation are the engines that power those ladders. Wages rise most reliably when firms generate greater value per worker through better technology, stronger processes, product innovation, and capital deepening. If investment flows mainly into areas that do not lift broad labor productivity, wage growth remains constrained. Similarly, if the business environment rewards competing on cost rather than capability, firms will prioritize cost control over wage expansion. This is where industrial strategy, incentives, and capital allocation become decisive. A wage transformation requires more than encouraging investment in general. It requires encouraging the right kind of investment, the kind that raises output per worker and creates roles with genuine complexity, responsibility, and value. When that happens, wages rise because employers can afford to pay more and because they need to pay more to attract the skills that higher productivity work demands.

Spatial inequality is another reason wage outcomes feel capped. National averages can hide sharp differences across states, urban centers, and industrial corridors. Higher wage opportunities tend to cluster where high-productivity firms cluster, and that clustering often coincides with better infrastructure, deeper talent pools, and stronger business ecosystems. For many households, moving to access higher-paying jobs is not a simple choice. Housing costs, transport burdens, schooling needs, and family support obligations can make mobility difficult. When workers cannot move easily to where the best opportunities are, local labor markets remain relatively slack and wages remain modest. This creates a self-reinforcing cycle: high wage regions attract more talent and investment, while lower wage regions struggle to break out because both workers and firms face barriers to upgrading at scale.

Macroeconomic conditions influence wages, but they are rarely the root cause of persistent low pay. Interest rates, currency movements, and external demand affect corporate profitability and hiring sentiment, which can either strengthen or weaken wage bargaining in the short term. Yet without improvements in productivity, job structure, and investment quality, macro tailwinds do not automatically translate into sustained wage growth for the median worker. An economy can have periods of resilience and still produce wages that feel stuck if the underlying mechanisms of value creation and wage-setting remain unchanged.

Taken together, these factors explain why low salaries in Malaysia persist even amid development progress. Wages are restrained when too many jobs sit in low value-added segments, when too many firms operate with limited productivity buffers, when informality and underemployment weaken earnings and progression, and when bargaining power is uneven across the workforce. Floor policies can protect workers at the bottom, but they cannot replace the harder work of building an economy where productivity improvements are widespread and where moving up the wage ladder is a normal expectation rather than a rare exception.

If Malaysia wants a wage story that feels different, it has to build the conditions that make higher pay sustainable. That means raising productivity across the broad base of firms, not only in elite clusters. It means strengthening the link between skills and work by improving job readiness while also expanding the number of roles that truly demand higher skills. It means reducing the incentives for industries to remain labor-intensive and low value-added, and nudging capital toward technology adoption, process upgrades, and innovation. It also means improving job mobility, information transparency, and the institutional balance that helps workers negotiate for a fair share of the value they help create.

In the end, wages are not merely a number on a payslip. They are a signal of what an economy values, how it competes, and whether its growth model is capable of lifting the median worker. Malaysia’s low salary challenge is therefore not a narrow wage problem. It is a structural development problem, and solving it requires shifting the foundations that determine what kinds of jobs exist, how productive they are, and how that productivity is shared.