Malaysia’s Informal Employment Declines to 3.28 Million Persons in 2025, Marking a Structural Shift Toward Formal Economy

Malaysia’s labour market has long grappled with a sizeable informal employment segment — workers operating outside the protections of standard employment contracts, social security frameworks, and formal business registration. Across Southeast Asia, informal work arrangements have historically absorbed large portions of the workforce, particularly among micro-entrepreneurs, own-account workers, and daily wage earners. In Malaysia, this structural challenge has been a persistent focus of national economic policy. According to the Department of Statistics Malaysia (DOSM), Malaysia’s informal employment rate recorded a measurable decline in 2025, signalling that ongoing formalisation efforts are beginning to produce quantifiable results in the country’s labour force composition.

Department of Statistics Malaysia Officially Reports a Two-Year Decline in Informal Employment, Falling from 21.8% to 19.8% of Total Employment

Malaysia’s informal employment fell to 3.28 million persons in 2025, accounting for 19.8 per cent of total employment — down from 3.45 million persons, or 21.8 per cent, recorded in 2023, the Department of Statistics Malaysia stated in an official release dated September 9, 2026. The department confirmed this decline reflects a net reduction of approximately 170,000 informal workers over the two-year period, representing a structural improvement in the quality of employment across the national labour market.

Within the breakdown, the informal sector itself — comprising businesses and production units that operate outside formal regulatory frameworks — accounted for the largest share of informal employment at 57.9 per cent, equivalent to 1.90 million persons. Employment in the formal sector by workers classified under informal arrangements stood at 41.5 per cent, or 1.36 million persons. The remaining 0.6 per cent, amounting to 18,300 persons, were engaged in household production units, the department confirmed.

The Department of Statistics Malaysia states that the transition of the informal sector into the formal economy is expected to strengthen economic resilience, create higher-quality jobs, and promote inclusive growth.

Informal Employment Spans Services, Trade, and Agriculture Sectors, with Own-Account Workers and Employees Representing the Largest Workforce Segments

Reportedly, the composition of Malaysia’s informal employment in 2025 reveals a workforce concentrated in service-oriented and trade-related activities. Within the informal sector specifically, own-account workers accounted for the largest share at 74.6 per cent, or 1.42 million persons, followed by employees at 17.1 per cent, or 322,400 persons.

Across all informal employment categories — spanning both formal and informal sector placements — employees represented the largest share at 44.9 per cent, or 1.47 million persons, followed by own-account workers at 43.2 per cent, or 1.42 million persons, and unpaid family workers at 10.5 per cent, or 343,800 persons.

By industry, the services sector dominated informal employment, accounting for 56.2 per cent of the total. Wholesale and retail trade, including the repair of motor vehicles and motorcycles, contributed the highest sub-sector share at 22.5 per cent, followed by accommodation and food and beverage service activities at 18.7 per cent. Food hawkers, internet salespersons, and rubber tappers recorded the highest individual occupation counts within the informal sector in 2025.

By occupational classification, service and sales workers represented the largest share of informal employment at 38 per cent, or 1.25 million persons, followed by those in elementary occupations at 20 per cent, or 655,100 persons, and other occupations at 17.8 per cent, or 582,700 persons.

Informal Workers Are Concentrated Among Micro-Entrepreneurs and Self-Employed Individuals, with Selangor, Sabah, and Kelantan Recording the Highest State-Level Figures

A segment of Malaysia’s workforce has long faced limited access to formal employment protections, social insurance coverage, and structured income pathways — and the 2025 data confirms this population remains substantial. According to the Department of Statistics Malaysia, men made up 61.8 per cent of informal employment, or 2.03 million persons, while women accounted for 38.2 per cent, or 1.25 million persons.

At the state level, Selangor recorded the highest number of informal workers at 617,000 persons, representing 18.8 per cent of the national total, followed by Sabah with 484,000 persons (14.8 per cent) and Johor with 319,800 persons (9.8 per cent). For employment specifically within the informal sector, Selangor again recorded the highest share at 17.8 per cent, or 337,100 persons, followed by Sabah at 15.2 per cent (287,900 persons) and Johor at 10.7 per cent (203,600 persons).

By informal employment rate — measuring the proportion of informal workers relative to each state’s total employed population — Kelantan recorded the highest rate at 39.2 per cent, followed by Terengganu at 29.5 per cent and Kedah at 29.2 per cent. Whether engaged as food hawkers in urban centres or as rubber tappers and smallholder farmers in rural states, both groups are identified by the department as priority segments for formalisation outreach and social protection access.

Malaysia’s Informal Entrepreneur Formalisation Plan and Perkeso Contribution Incentives Form the Policy Backbone of the Government’s Formalisation Drive

Public records show that the Malaysian government has implemented a coordinated policy response to the structural presence of informal employment, incorporating regulatory, financial, and social protection mechanisms. The Department of Statistics Malaysia confirmed in its September 2026 release that the government is actively formalising informal economic activities through a suite of policies and programmes, including the Informal Entrepreneur Formalisation Plan, which targets increased business registrations, improved productivity, and expanded access to financing, training, and social protection for currently unregistered operators.

The department further stated that the Social Security Organisation — known as Perkeso — provides contribution incentive schemes designed to encourage workers and self-employed individuals to obtain social protection coverage, addressing one of the core vulnerabilities associated with informal employment: the absence of income replacement during illness, injury, or loss of work. The informal sector, the department noted, will continue to support employment opportunities and income generation, particularly for micro-entrepreneurs and self-employed individuals, even as formalisation progresses. The combined policy direction is described by the department as foundational to Malaysia’s objective of promoting inclusive economic growth over the medium term.

Frequently Asked Questions About Malaysia’s Informal Employment Statistics 2025

What is Malaysia’s informal employment figure for 2025? Malaysia’s informal employment stood at 3.28 million persons in 2025, accounting for 19.8 per cent of total employment, according to the Department of Statistics Malaysia.

How does the 2025 informal employment figure compare to 2023? In 2023, informal employment in Malaysia was recorded at 3.45 million persons, representing 21.8 per cent of total employment. By 2025, this figure declined to 3.28 million persons (19.8 per cent), reflecting a reduction of approximately 170,000 workers over two years.

Which sector accounts for the largest share of informal employment in Malaysia? The informal sector accounts for 57.9 per cent of Malaysia’s total informal employment, equivalent to 1.90 million persons, making it the dominant source of informal work arrangements in the country.

Which states in Malaysia have the highest informal employment rates? Kelantan recorded the highest informal employment rate at 39.2 per cent of state-level total employment, followed by Terengganu at 29.5 per cent and Kedah at 29.2 per cent. In absolute numbers, Selangor has the most informal workers at 617,000 persons.

What types of workers make up Malaysia’s informal employment population? Informal employees represent the largest share at 44.9 per cent (1.47 million persons), followed by own-account workers at 43.2 per cent (1.42 million persons) and unpaid family workers at 10.5 per cent (343,800 persons). Food hawkers, internet salespersons, and rubber tappers are among the top occupations recorded.

What government programmes are in place to address informal employment in Malaysia? The Malaysian government is implementing the Informal Entrepreneur Formalisation Plan to increase business registrations, improve productivity, and expand access to financing and training. Additionally, Perkeso operates contribution incentive schemes to extend social protection coverage to workers and self-employed individuals in the informal workforce.

What is the gender breakdown of informal employment in Malaysia in 2025? Men account for 61.8 per cent of Malaysia’s informal employment, or 2.03 million persons, while women make up 38.2 per cent, or 1.25 million persons, based on the Department of Statistics Malaysia’s 2025 data.

Closing Summary: Malaysia’s Informal Employment Rate Edges Downward as Formalisation Policy Framework Takes Hold

The Department of Statistics Malaysia’s 2025 data confirms a measurable decline in Malaysia’s informal employment — from 21.8 per cent of total employment in 2023 to 19.8 per cent in 2025 — representing a quantifiable shift in the country’s labour market structure. With 3.28 million persons still engaged in informal work arrangements, the scale of the challenge remains significant, particularly in states such as Kelantan, Terengganu, and Kedah, where informal employment rates exceed 29 per cent. The government’s Informal Entrepreneur Formalisation Plan, combined with Perkeso’s social protection incentive schemes, forms the institutional foundation through which Malaysia aims to accelerate the transition of informal workers and micro-entrepreneurs into the formal economy.

For more information on the Department of Statistics Malaysia’s informal employment report and related labour market data, readers may contact:

Department of Statistics Malaysia (DOSM) Kompleks Jabatan Perdana Menteri, Presint 8, 62100 Putrajaya, Malaysia Phone: +603-8885 7000 Email: helpdesk@dosm.gov.my Website: www.dosm.gov.my