Malaysians may welcome higher salaries, but simply raising wages without improving productivity could create longer-term problems for businesses and the economy, according to the World Bank.
In its Malaysia Economic Monitor 2026, the World Bank found that real monthly wages in Malaysia have generally grown faster than labour productivity per worker since 2010.
The issue was recently highlighted again by local media amid ongoing discussions over wage increases and Malaysia’s push towards becoming a high-income economy.
Wages have grown faster than output per worker
According to the World Bank, Malaysia’s real median and mean monthly wages both rose faster than labour productivity per worker between 2010 and 2024.
The bank explained that higher wages can be sustained when workers are able to produce more or generate higher-value output.
However, if wages increase without corresponding improvements in productivity, businesses may respond by raising prices to cover higher labour costs.
Over time, that could make companies less competitive and weaken demand for their products or services.
In simple terms, salary increases alone are not enough, productivity needs to grow alongside them.
But there’s an important distinction
The World Bank also noted that the picture changes depending on how productivity is measured.
While productivity per worker has generally grown more slowly than monthly wages, productivity measured per hour worked has moved broadly in line with wage growth.
The bank suggested this could mean Malaysian workers have become more efficient on an hourly basis, but average working hours have fallen, limiting the growth in total output produced by each worker.
So the issue is not simply that Malaysians are being paid “too much”.
Instead, the challenge is ensuring businesses become productive enough to sustainably offer workers higher salaries.
Malaysia still needs better-paying, higher-productivity jobs
The World Bank has also pointed to structural issues holding Malaysia back.
Its report found that highly productive firms tend to pay substantially more, with the top 10% of Malaysia’s most productive companies paying workers around three times more than the median firm.
However, these highly productive businesses have struggled to expand their market share and employ a larger portion of the workforce.
The World Bank said challenges including regulatory barriers, limited access to financing, weak competition, skills gaps and slow technology adoption prevent productive businesses from expanding faster.
Government also says higher pay must come with productivity
Malaysia’s government has similarly stressed that wage increases should be accompanied by better productivity and skills.
Economy Minister Akmal Nasrullah Mohd Nasir said in September that the Progressive Wage Policy should not focus only on incentives to increase salaries, but should also improve productivity, training and workers’ skills.
The government is expected to conduct a comprehensive assessment of the policy by the end of 2026 or early 2027.
Malaysia’s labour productivity has continued to improve this year.
According to the Department of Statistics Malaysia, labour productivity per hour worked grew 5.5% year-on-year in Q2 2026, reaching RM46.50 per hour.
Not all data shows wages running ahead
There is also some nuance when looking at more recent years.
Bank Negara Malaysia reported that from 2019 to 2024, real wages grew at an average annual rate of 0.9%, slightly slower than productivity growth of 1.1%. It said wages only caught up with cumulative productivity gains in 2024.
For 2025 specifically, BNM said private-sector wages rose 3.6%, while labour productivity per worker increased 3.4%. However, cumulatively since 2019, productivity had risen 9% while private-sector real wages per worker actually declined by 1.7%.
So while the World Bank’s longer-term data shows wages growing faster than productivity per worker since 2010, the situation varies depending on the period and the productivity measure used.
