Minimum wages in Malaysia, Indonesia, Vietnam, Thailand and the Philippines are set to rise in the coming year, broadly supporting consumption spending, according to OCBC senior Asean economist Lavanya Venkateswaran.
“Although policymakers in the region have been largely pragmatic regarding minimum wage hikes, recent trends have turned more mixed,” writes Venkateswaran in her Dec 12 report. “The region remains primed for further foreign direct investment (FDI) inflows and, as minimum wages rise, competitiveness considerations will become increasingly pertinent.”
Indonesia, Malaysia and Thailand announced wage increases for 2025 between October and November this year, while Vietnam and the Philippines announced their increases earlier in July. As such, Venkateswaran expects the next round of potential negotiations for the latter two counties to arrive only next year.
Within the region, Vietnam’s minimum wages remain lower than regional peers while similar wages are the highest in Malaysia. The increase in minimum wages for these economies in 2025 are set to be higher than the expected rise in inflation, notes Venkateswaran.
“Put another way, real wages are likely to rise next year, which suggests that income growth is likely to remain supportive of broader consumption expenditures,” she adds.
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As minimum wages rise each year however, considerations over overall competitiveness have become a pressing question.
As these economies continue to be a magnet for FDI inflows from across the globe and remain primed for further inflows, Venkateswaran highlights that it is crucial for wage increases to be “commensurate with labour productivity increases, at least on average”.
However, the evidence on this is mixed depending on the economy, she adds. “For example, minimum wage increases in Indonesia have outpaced labour productivity, i.e., output per worker, growth. This is similar for Malaysia, where minimum wage increases have outstripped labour productivity growth.”
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Malaysia introduced minimum wages in 2013, and the wage was initially set at MYR900 per month in Peninsular Malaysia and MYR800 per month in Sabah, Sarawak and the Federal Territory of Labuan.
Meanwhile, in the Philippines, recent minimum wage increases in the country’s national capital region have been lower than productivity gains, while Thailand has seen labour productivity decline in recent years compared to modest increases in minimum wages.
In Thailand, however, the planned 15% increase in daily minimum wages for 2025 and further 50% increase from those levels in 2027 suggests that labour productivity and economic growth “need to rise rapidly in coming years to validate the cost increases for businesses”, adds Venkateswaran.
Thailand’s 15% wage increase to THB400 ($15.76) was already delayed from October to January 2025 and industry participants are looking to further delay the implementation, notes Venkateswaran.
On the other hand, Vietnam’s regional minimum wages grew sharply from 2001 to 2019. Although labour productivity growth — measured by real gross domestic product (GDP) per employed person — did not keep pace with minimum wage rises, topline strength in GDP growth and fundamental progress on economic reforms kept the broader attractiveness of the economy in check, says Venkateswaran.
Higher minimum wage across the region will remain supportive of consumption in 2025, says Venkateswaran.
“However, as the region remains focused on attracting further FDI inflows, an important consideration for minimum wage increases would be whether they are commensurate with productivity gains. The minimum wage increases pencilled in for next year suggest that labour productivity gains will need to be larger in 2025 compared to the recent few years,” she adds.
