Executive summary

  • Malaysia’s proposed Progressive Wage Policy (PWP) is a structured wage incentive programme inspired by Singapore’s Progressive Wage Policy. It is a voluntary programme targeted at micro, small, and medium enterprises (MSMEs), with the objective of boosting wage growth, productivity and skills development.
  • As the PWP transitions to nationwide implementation after the end of the pilot in September 2024, crucial decisions regarding key design aspects of the PWP will need to be made, particularly as the white paper leaves out important details on how some aspects will be operationalised in practice.
  • These important design considerations include whether the PWP should remain voluntary after the pilot phase ends. While a voluntary PWP could make it easier for small businesses to adapt in the short term, in the long term it may work to constraint the programme’s impacts on wages and productivity.
  • Similarly, policymakers will need to decide on how inclusive coverage will be. In its current form, we estimate that the PWP will leave out most workers in Malaysia. When implemented nationwide, this will create significant trade-offs between its inclusiveness, effectiveness and overall costs.
  • Looking at the post-pilot phase, policymakers should implement a gradual transition to mandatory compliance and expanded coverage, drawing from Singapore’s model. This could mean extending mandatory compliance on a sector-by-sector basis, while adopting a phased approach to expanding eligibility conditions across a more diverse range of workers and firms.
  • Additionally, the PWP should be integrated closely with existing education and skills training institutions, including by establishing occupation-specific skill progression pathways using HRD Corp’s knowledge base. Likewise, greater integration between the PWP and TVET pathways and programmes like Academy in Industry (AiI) will improve its impacts and streamline implementation.

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Malaysia’s progressive wage policy
A guide to policy design considerations for effective implementation

by Calvin Cheng and Kevin Zhang, March 2024.

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