Malaysia Migrants

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MIGRANT WORKERS IN THE MALAYSIAN LABOUR MARKET:PARTICIPATION AMIDST POLICY DEFICIENCY

Shankaran NambiarSenior Research Fellow

Malaysian Institute of Economic ResearchEmail: [email protected]

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MIGRANT WORKERS IN THE MALAYSIAN LABOUR MARKET:PARTICIPATION AMIDST POLICY INCONSISTENCY

ABSTRACT

Migrant labour has had a long history of participation in Malaysias economicdevelopment. Indeed, migrant labour continues to play an important role in thecountrys labour market. Since the late1980s the country has had vigorous growthrates and this has necessitated an adequate supply of labour, an issue that has beenof particular concern especially since the early 1990s. In the 1980s thegovernment encouraged the growth of the manufacturing sector, with theconsequent effect of necessitating more labour for the agriculture sector becauseof the consequent rural-urban flow and the shortage of labour in the agriculture.Increasingly there has been demand for labour in the manufacturing, construction

and services sectors for jobs that are not favoured by domestic workers. DespiteMalaysias reliance on migrant labour, its policies have not been consistent,alternating between a stance that is favourable to migrant workers and one thatseeks to ban their presence. Nonetheless, there is evidence that the economywould suffer in the absence of migrant labour. The wages in the manufacturingand construction sectors are dampened due to the presence of migrant workers.Further, the availability of cheap migrant workers has been beneficial to sub-sectors within the services sector, primarily in the hotel industry and as maids.The latter permits Malaysian women to play a more active role in the labourmarket. However, insufficient attention has been paid to the rights of migrantworkers although non-governmental organisations have drawn attention to thisproblem.

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INTRODUCTION

Migrant workers have come to occupy an increasing role in Malaysias

development process. There is heated debate on the issue of migrant labour given

the various aspects to the issue. On the one hand the presence of migrant labour

frees some segments of the labour force to take a more active part in the labour

market, the female population being particular beneficiaries. On the other hand

there is concern that the easy access to migrant labour delays the process of

technological upgrading in the economy.

There is little doubt that migrant labour has had an important role to play in

Malaysias development path. Under the British colonial period, the country

relied heavily on migrant labour for the development of plantation, mining

industries as well as the building of roads and railways, later absorbing these

workers to become permanent residents and subsequently as its citizens

(Navamukundan, 2002). The concern now is that there is undue reliance on

migrant workers and insufficient resources being directed towards attracting

domestic workers towards key sectors in the economy (Narayanan and Lai, 2005).

Indeed, it is also argued that migrant labour carries with it economic costs due to

the health risks, threat to security and the social problems that they are perceived

to cause (Tey, 1997).

This paper attempts to forward the claim that migrant workers do make a useful

contribution to the Malaysian economy by helping to ease the upward pressure on

wages. However, it is argued that government policy regarding migrant labour

has been inconsistent and treats them as a buffer category. The paper proceeds as

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follows. The next section provides an overview of the labour market, discussing

employment trends in the key economic sectors, and thus setting the context for

the role of migrant labour. This is followed by an attempt at tracing the broad

policy thrusts on migrant labour in recent years. The fourth section investigatestrends in the inflow of migrant workers before assessing the economic impact of

migrant labour. The fifth section draws attention to ethical issues before some

concluding remarks are made.

THE LABOUR MARKET: A BACKGROUND

The labour force in Malaysia has been growing steadily since the 1970s. In 1970

the labour force amounted to about 3.6 million persons and now stands at about

11.2 million. Noticeable increments took place in the mid-70s when there were

about 4.2 million people (1975) in the labour force, increasing to about 5.4 million

in 1984. The rise continued to 6.8 million in 1989 (see Table 1). More recently,

this figure reached 9.0 million in 1997 and rose even further in 2005 (11.3

million).

Alongside the increase in labour force, the unemployment rates have been rather

stable, at least since the early 1990s. In 1993 the unemployment rate was 3 per

cent and declined to 2.4 per cent in 1997. This, in part, explains the shortage of

labour and the need for migrant labour. The effect of the 1997 Asian financial

crisis showed its effects in 1998 with a rise in the unemployment rate (3.2 per

cent). The unemployment rate has been hovering around 3.5 per cent in recent

years, or more specifically has been at about this rate from 2002 to the present. A

low unemployment rate is not something that Malaysia has always experienced.

The unemployment level was about six per cent in 1984 and averaged about 8.2

per cent between 1986 and 1988. In contrast, in the years just before the crisis the

unemployment rates were much lower than they are now, touching about three per

cent between 1993 and 1995, reaching the lowest attained in decades in 1997.

A clearer picture of the significant role that is played by migrant workers can be

obtained if we first note the contributions of the different sectors to GDP and

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observe the demand for labour exhibited by the respective sectors. Agriculture,

which contributed up to 33 per cent of GDP in 1970, has been making smaller

contributions in successive years (Table 2). The contribution of agriculture to

GDP has been no more than eight per cent in 2005, a consequence of Malaysiasdevelopment strategy. Manufacturing, on the other hand, has increased from 12.8

per cent of GDPs share to about 32 per cent. Construction has more or less

maintained an even keel, as has the services sector.

In term of employment, the agriculture sector was the largest source of employment, accounting for more than 50 per cent of total employment in 1970

(Table 3). By 2000, only about 15 per cent of the labour force was engaged in

agriculture. The decrease in the size of the labour force that is devoted to the

agriculture sector denotes the increasing opportunities that came about with the

rise in industrialisation, a phenomenon that arose with the explicit government

drive to promote the manufacturing sector and which came to a head under the

Second Industrial Master Plan (Ministry of International Trade and Industry,

1996). The manufacturing sector has come to play a more important role in

generating employment as evidenced by the employment generated by this sector.

Close to nine per cent of total employment was due to this sector in 1970 and this

share rose to almost 30 per cent by 2005. It must be noted that the services sector

has been a rising source of employment.

The growth rate of employment in the agricultural sector has been declining over

the years. There was a rapid decline in the rate of employment in 1980 (-7.1 per

cent), which tapered off in the succeeding years (Table 4). The decline was gentle

in 1982 (-0.3 per cent) and 1983 (-0.2 per cent), only to witness a more marked

downward movement in the 1990s. On the average, the rate of decrease in

employment generated by the agriculture sector from 1990 to 2000 was about 2.8

per cent. Since 2000 to 2004 there has been a winding down of employment in

this sector, with the employment growth touching about - 0.2 per cent. The

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evidence clearly indicates that the agriculture sector is not a creator of

employment. These figures highlight the fact that this sector is not a vibrant one

and explains why the sector needs to depend upon migrant labour, as we shall see

subsequently.

The mining sector has also displayed poor growth rates in employment. The

whole decade of the 80s has been one where employment has been decreasing in

this sector. There was a significant decrease in the growth of employment in

mining in 1980 (- 11.1 per cent), and even more striking declines in 1985 (-34.3

per cent) and 1986 (-15.9 per cent). This negative trend continued till the end of

the decade, showing a drop of about 11 per cent in 1989 and about 12 per cent in1990. In more recent years, particularly from 2002 to 2004, this sector has

generated a small positive growth in employment, recording an annual increase of

about one per cent.

The manufacturing sector is one of the more consistently active sectors in the

economy and it has, in the last two decades, been driving the countrys economic

growth. The figures clearly attest to this fact. The development of this sector has

come to need an increasing supply of labour, some of it being supplied by migrant

workers. A glance at the statistics distinctly shows that between 1980 and 1986,

the rate of growth in employment from the manufacturing sector has been less

than five per cent. In fact in 1980, manufacturing did not spur any growth in

employment; the rate of growth in employment was around one per cent in 1982

(1.5 per cent) as it was so in 1985 (1.3 per cent) and lower in 1986 (0.6 per cent).

The initiatives that were launched by the government in the mid-80s to accelerate

the impetus for higher industrialisation, particularly export-oriented

manufacturing, showed their effect in the labour market in 1987 when the rate of

growth in employment rose in this sector to 10 per cent; it was consistently high

till 1996. Considering the period from 1988 to 1996, the growth in employment

averaged 9.7 per cent. Subsequent to the crisis there have been fluctuations in the

rate of increase in employment in the manufacturing sector, especially in 1998 and

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2001. On both occasions this has been due to external shocks.

The construction sector has been consistently generating employment at a more

encouraging rate, and it has been doing so in the last 20 years. It is only in theyears soon after the 1997 crisis that the construction sector took a dip. We note

that the 1998 and 1999 there was a negative growth in employment generated in

this sector (-7.6 per cent and -7.5 per cent, in respective years). The most active

years during which there was steady increase in the rate of growth of employment

in the construction sector was from 1990 (12.5 per cent) to 1995 (19.9 per cent),

averaging an annual growth rate in employment of roughly 11 per cent for the

length of this period.

The rate of change in employment in the services sector has been within fairly

narrow bounds since 1981. Except for 1985 when there was a huge demand for

labour in this sector, the rate of growth in demand for labour has been roughly

about four per cent over the period spanning 1980 to 2006. The services sector

that has not been beset with undue fluctuations in the rate of growth of

employment, save for rare rises and equally rare plunges (but even then never

touching or crossing the zero mark).

The changing patterns in employment provide an inkling of the demand for

migrant labour that has come to emerge over the years. The agriculture sector,

which has been requiring a reduced demand for labour, has become less attractive

as a source of employment for domestic labour. However, there are sub-sectors

within agriculture which continue to demand labour that is met with the supply of

migrant workers. As we shall see in a later section these are specific sub-sectors

within the services sector which require migrant labour. Migrant workers who

have little education and are not skilled do have a demand in some segments of

the services sector.

GOVERNMENT POLICIES ON MIGRANT LABOUR

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Before we proceed to examine the effect of Malaysias foreign workers on the

labour market, we should examine policies that have been used by the government

in managing migrant labour. By looking at these policies, a picture will emergeon the position of the government with regard to foreign workers (see Kanapathy,

2004:404-410 and Tey, 1997 for timelines on government policies). The rationale

for this analysis is to determine if government policy corresponds to the

movement of migrant labour and whether government policy has been well-

planned and consistent.

The Malaysian government has actively made interventions in migrant labour

policies since the 1960s. The first instruments of policy are the Immigration Act

1957, followed by the Employment (Restriction) Act 1968. Both Acts, put

together, define the conditions under which foreign labour can enter and obtain

employment in the country. At the time of drafting, these Acts would not have

been able to anticipate the changing labour needs of the economy, and so were

supplanted by other measures in accordance with the changing exigencies, as and

when they occurred. Since Malaysia was basically a natural commodity-exporting

country right up to the 1960s, with little industrialisation at that time, there was

not much need to devise policy measures to encourage the inflow of migrant

labour, neither was there a pressing concern about restricting illegal workers.

It is in the 1980s when the manufacturing sector began to take-off and process of

urbanisation had deepened that labour shortages were more visible in the

agricultural sector. In 1984, agreements were signed with the governments of

Indonesia, Thailand and Bangladesh on the legal entry and employment of foreign

workers. In particular, the Medan Agreement with Indonesia was signed to

remedy the shortage of labour in the plantation sector. Five years later, in 1989, it

was realised that only 30 per cent of the foreign workers in Malaysia were

registered, following which there was a freeze on the intake of Indonesian

workers. Further, it was decided by the government that plantation workers on a

three-year contract were to receive the same wages and benefits as were given to

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locals, reducing the cost advantage that firms would have enjoyed by employing

migrant labour; this was part of the attempt to restrict the intake of foreign

workers.

A comprehensive policy was designed with regard to the recruitment of foreign

workers in 1991. The purpose of this policy was two-fold: it was meant to

safeguard the interests of foreign workers and to expedite the employment of

migrant labour in areas where the labour shortage was felt most urgently. Under

this policy, work permits were issued automatically to workers employed in the

plantation and construction sectors, and employers seeking to employ workers in

the manufacturing and services had to show evidence of difficulty in obtaininglocal labour. Under this initiative employers were required to make a mandatory

contribution to the Social Security Organisation (SOCSO), bear the cost of

recruitment and repatriation, and be accountable for foreign workers. While

facilitating the recruitment of foreign labour into specified sectors, an effort was

made to make employers more accountable in the employment of foreign workers.

Aside from the policy review on the recruitment of foreign labour in 1991 another

review was carried out in 2002. It should be noted that this review occurred when

the economy was recovering after the downturn in 2000. One of the policy

decisions that was taken was to offer a work permit for a period of three years,

after which extensions of one year could be offered on two successive occasions.

In the case of skilled workers extensions beyond the five-year period were

permitted, subject to the workers being from industries which experienced severe

skill shortages. It was also decided that the predominance of any one nationality

among foreign workers would be discouraged. It was decided that the intake of

Indonesian workers would be halved and permitted employment only in the

plantation sector and as household maids. To counterbalance the prevalence of

Indonesian foreign workers, the government approved the intake of workers from

Uzbekhistan, Kazakshstan and Turkmenistan. In order to streamline the

recruitment of foreign workers recruitment was to be done on a government-to-

government basis.

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Several attempts have been made to regularise foreign workers, notable among

them was an attempt was made in 1992 to regularise foreign workers. The foreign

worker regularisation programme was launched in 1992, for a period stretchingfrom January 1992 to August 1994, to legalise illegal workers, leading to the

registration of almost 500,000 illegal workers. The bid to legalise foreign workers

who had entered the country through irregular means at this point, at a time when

the labour shortage was acute, is another piece of evidence that is indicative of the

use of foreign labour as a buffer category. This exercise to legalise illegal foreign

workers was followed by a similar attempt in 1996. Foreign worker regularisation

programmes specifically targeted at Sabah and Sarawak were executed in 1997and 1998, respectively. The government has had recurring concerns about illegal

workers and in this vein an amnesty was granted in 2002 to foreign workers.

Those with no documentation were given the option of leaving the country

voluntarily, free of any punitive action being taken against them. This was well

received and resulted in about 570,000 undocumented workers leaving the

country.

The government policy on migrant workers has, perhaps, been poorly conceived

and even more poorly executed. The first issue that is of concern is the recurrent

problem of illegal workers. In spite of the repeated attempts to weed out illegal

workers this continues to be a problem. There are many reasons why the problem

may be difficult to root out, and this includes the geographical proximity of

countries that supply such workers. But beyond that the problem also persists

because of inadequate border controls, something that reduces itself to the

question of stricter implementation mechanisms.

Equally troubling is the ad hoc manner in which workers are invited into the

country; but with bans being imposed on workers with regularity. For instance, in

April 1993 there was a ban on the further recruitment of all unskilled foreign

workers. This was lifted in June, 1993 for those workers with selected skills

following appeals by employers. Again, in January, 1994 a ban was re-imposed

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that applied to all sectors and this ban was lifted after six months for the

manufacturing sector. Understandably, in August 1997 there was a ban on the

recruitment of all workers due to the financial crisis. The restriction disallowing

the recruitment of domestic maids was relaxed a month later, whereas the ban forother workers ceased to be effective in November 1998.

In the aftermath of the crisis, it was thought, and rightly so, that Malaysias

dependence on foreign workers had to be reduced. This was justifiable since it

addressed the unemployment arising from the debacle as well as the outflow of

currency. Subsequent to the August 1997 ban on the recruitment of all foreign

workers was the ban on the renewal of work permits for foreign workers in themanufacturing, construction and service sectors. The only sector that was exempt

from this ban was the plantation sector. As if to bolster the strength of the ban on

new recruitment, the government raised the annual levy to be paid by foreign

workers and required employers to make mandatory contributions to the national

pension fund. Both of these policy directives were introduced with the intention

of creating disincentives to the employment of foreign workers. It should be

noted the increase in annual levy was not marginal because the levy for workers in

the construction and manufacturing sectors was raised from RM1,200 to RM1,500

(a 25 per cent increase) and that for the service sector was raised from RM720 to

RM1,500, indicating more than a 100 per cent increase. The requirement of

mandatory contributions by employers to the employers provident fund (EPF)

was imposed in January, 1998, but was withdrawn shortly thereafter. The initial

directive required employers of all migrant workers (except domestic maids) to

make payments of 12 per cent to the EPF, supplemented by employee

contributions of 11 per cent of monthly wages. This requirement was revoked in

2001, indicating a reversal in policy that peppers the frequent switches in labour

management strategies in the country.

There are frequent changes in policy strategies with regard to migrant labour.

This vacillation in policy stance has the unfortunate effect of reducing policy

credibility, making the task of implementation more difficult. Frequent changes

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in policy position also make it difficult for firms to plan their human resource

needs and, in fact, encourages them to anticipate the reversal of measures that are

imposed (The Star, 2007). The 1997 ban on the renewal of work permits for

migrant workers in the services sector was lifted in 1998. Similarly, the ban onthe new recruitment of foreign labour imposed in 1997 was revoked in 1998.

Also the annual levy that was raised in 1998 was reduced to RM1,200 in 1999.

Another instance of a policy switch can be found in the 2001 ban on the intake of

foreign workers from Bangladesh that was subsequently relaxed.

One issue that is striking with regard to the policy process on migrant labour is the

lack of a review that is based on the well-being of foreign workers. The closesteffort that was made towards taking into account the welfare function of foreign

workers has been through the 1991 policy on the recruitment of foreign workers.

The requirement that mandatory contribution be made to SOCSO and the option

to contribute to the EPF could help improve the welfare of foreign workers.

Nevertheless, the contribution to EPF is optional and is of little practical value.

On the other hand, requiring the employer to bear the security bond that is place

with the Immigration Department is counter-productive because this cost is passed

on to the workers. The same is the case with the requirement that employers bear

the costs of recruitment and repatriation, since this, too, is passed on to the

employee. There are two possible reasons why these policy measures were put in

place: a) they reduce the financial burden for foreign workers who have gained

employment in Malaysia, and b) by virtue of the costs being borne by the

employers, the welfare of migrant workers is improved. In practise, with the costs

being shouldered by the workers, because employers deduct the extra costs from

the salaries of the migrant workers, the foreign workers welfare functions are

reduced.

There are obvious deficiencies with respect to government policies on migrant

workers. In the first place, these policies, as we have seen, are poorly designed,

adversely affecting the workers even when they are meant to assist them. Second,

the government authorities announce bans on certain sections of migrant workers

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from time to time, making long term planning difficult for employers. Third,

some policies which appear to have the effect of improving the welfare of migrant

workers, are, in fact, optional, and so have almost no real value to them. These

instances tend to suggest that the policies on migrant workers are not designedwith a view to attending to the welfare of these workers and work towards

alleviating the short-term needs of those sectors that need a supply of labour

cannot be satisfied by domestic workers.

TRENDS IN THE INFLOW OF MIGRANT WORKERS

The sustained rates of growth in the mid-1970s necessitated the inflow of migrant

labour, which was drawn to support the agricultural sector. Malaysia, in this

phase, was undergoing rapid industrialisation, as a consequence of which there

was a net inflow of labour into the industrial areas of the country. The movement

of domestic labour to urban areas created a situation of excess demand for labour

in the agriculture sector. This was met with the supply of migrant labour, with the

majority of workers who came into the country during this period being from

Indonesia. They were brought into the country on an informal basis and employed

in the agricultural sector to fill the gap that arose due to the domestic movement of

labour.

Indonesia was a logical choice for foreign labour at that time because of

geographical proximity, besides sharing a similar religious and cultural

background. These factors have, perhaps, laid the setting for continued authorised

and unauthorised labour inflows. The bulk of foreign workers may have been

Indonesian, but there were also workers from Thailand and the Philippines. The

influx, and accommodation, of illegal migrant workers has its origins during this

period. It was estimated that there were almost one million foreign workers in the

country during this period, most of whom were in the plantation and construction

sectors. Official sources, on the other hand, note that a small proportion of these

workers held valid documents. For instance in 1985 only about 3,500 foreigners

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were registered as workers in the country.

There was a decline in commodity prices (principally palm oil and rubber) in

1985, leading to a recession. The recovery was swift, and in 1988 growth rateswere high, reaching almost 8 per cent. By the early 1990s there was, again, a

situation of labour shortage. This led to an excess demand for skilled and

unskilled labour, pushing wages of local labour up. In 1994 there were about

640,000 registered migrant workers; this number rose to about 745,000 in 1996

(see Table 6). The number of legal migrant workers sky-rocketed to about 1.5

million in 1997, only to drop to 1.2 million the following year. Once the full

impact of the East Asian financial and economic crisis was felt, the need formigrant workers declined, sliding to about 900,000 workers in 1999, and settling

at about 630,000 migrant workers by the year 2000. The number of illegal

migrant workers in 1997 was put at one million by the Ministry of Home Affairs

implying that the economy was home to as many as 2.5 million workers in that

year alone, constituting close to one-third of the total labour force requirements of

the country. Once again, the bulk of the foreign workers were employed in the

plantation and construction sectors.

Following the 1997 crisis the economy faced a slowdown and that helped to

moderate the demand for unskilled migrant workers. The GDP sank to -6.7 per

cent as a result of the recession and the unemployment rose to 3.9 per cent. While

an economy that has unemployment rate that is within the boundary of four per

cent is often considered to be in full employment, in the Malaysian context, given

the previously high levels of growth that had been achieved and the excess

demand for labour that had come to be expected, an unemployment rate of 3.9 per

cent was perceived as being high. The total number of retrenchments that workers

had to face because of the crisis was unprecedented. A total of 83,865 workers

were retrenched in 1998, most of whom (88 per cent) were local workers. This

led to adjustments in government policies on migrant labour and a stricter

enforcement of laws to curb the illegal entry of migrant workers, particularly from

Indonesia. There was a turn-around in policies and efforts to restrict the inflow of

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foreign workers were instituted.

In 1999 there were around 900,000 registered migrant workers. The slowdown in

the electronics and electrical industry coupled with the September 11 incidentcaused a recession in 2001. Although official figures are not available for the

number of registered migrant workers in 2002, it is interesting to note that an

amended Immigration Act was enforced in August 2002. In the months before the

enforcement of the Act (March July 2002), an amnesty was granted to those

migrant workers who had entered illegally or had overstayed. An estimated one

million workers were covered by this provision which involved repatriation

without prosecution. By 2003 the economy had recovered and there was, onceagain, renewed demand for unskilled labour. Thus, the number of registered

migrant workers was 799,685 in 2000, and in 2004 the figure rose to almost 1.4

million, gliding up, again, in 2005 to 1.9 million registered migrant workers. It is

estimated that there are presently around 0.7 million illegal workers in Malaysia,

close to 70 per cent of whom are of Indonesian origin.

The number of foreign workers has been increasing tremendously over the years,

and in spite of the bans on them the number has been steadily rising. In the early

1980s there were about 136,000 foreign workers, but this number swung up to

almost 1 million in 2000. The proportion of foreign labour was estimated to be

about 10 per cent of the total labour force in 2004. As at July 2004 it was reported

that there were about 1.5 million migrant workers. In the following year (at the

end of May, 2005) official sources report an increase to 1.6 million that, again,

rose in 2006 (1.8 million) and inched up yet again by the end of May, 2007 to1.9

million.

Several remarks, at the risk of digressing, are in order with respect to the number

of migrant workers. These numbers point to an increasing contribution of migrant

labour as a percentage of the total labour force. Foreign labour contributed about

10 per cent of the total labour force in 2004 and by 2007 it constitutes close to 17

per cent of the labour force. Another comment that must necessarily be made is

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that these estimates are from official sources. The figures that have just been

quoted are compiled by the Immigration Department and refer only to those

workers who have entered the country legally.

There have been widespread criticisms regarding the understatement of official

figures. It has been claimed that there were around two million workers prior to

the 1997 crisis, 800,000 of whom were probably illegal. This statement must be

juxtaposed against the official estimate of 1.2 million foreign workers being in the

country at that time. It is unfortunate that statistics relating to foreign workers is

not regularly published, neither is the breakdown of foreign workers by

occupation or sub-sector of employment available. This tends to throw doubt onthe credibility of statistics pertaining to migrant labour.

Most of the migrant workers are employed in the agriculture sector, specifically in

the plantations. By July 2004 there were 335,200 foreign workers in agriculture

as compared to 115,800 in 1990. These figures tend to be deceptive in the sense

that although the absolute numbers have more than number, the share of foreign

workers in the total employment in the sector has been declining. In 1990 foreign

workers constituted almost 48 per cent of the total labour in this sector, but

dwindled down to roughly 17 per cent in 2003, and accounted for 24.7 per cent in

July 2004.

The sector that now most employs migrant labour is the manufacturing sector,

where 30.5 per cent of the workers are foreigners. The share of foreign workers

was about 10 per cent in 1990 and more than doubled in 1995 (24.1 per cent),

moving up to its present value by 2001 (31.5 per cent). The construction sector,

too, has come to employ a higher percentage of foreign workers, shifting from

about 10.4 per cent in 1990 to 23.6 per cent in 2003. The mining and services

sector show are different trend in the composition of migrant workers. The share

of migrant workers is declining in the services sector, slipping from 31.3 per cent

in 1990 to 25.0 per cent in 2004. On the other hand, mining has little need to

foreign workers who account for less than one per cent of the labour force. This is

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hardly surprising since mining, with the closure of tin mining, is not a substantial

economic activity in the country.

The bulk of the migrant workers in Malaysia come from Indonesia. Indonesianworkers have long been the majority of foreign workers in the country, with

workers from Bangladesh taking second place. Between them, Indonesian and

Bangladeshi workers constituted 90.4 per cent of migrant workers in 1998. More

recently, the workers from these two countries account for 74.5 per cent of the

total foreign labour force. The share of Bangladeshi workers has been steadily

falling from 37.1 per cent in 1998 to 8.0 per cent in 2004, while that of Indonesian

workers has been increasing.

Two factors are at play here. First, the government has been guided by the belief

that it is unwise to entertain workers from only one source. The government has

chosen to have foreign workers from diverse countries, although the rationale for

choosing to permit the inflow of workers from one country rather than another

(and that too for specific jobs) has never been explicitly explained. Second, the

government has reduced the number of Bangladeshi workers in the country to

avoid social problems that have been caused by this segment of workers. In any

case, and as part of the strategy to have migrant workers from a variety of

countries, labour from Nepal and Myanmar has been permitted to enter Malaysia.

While Nepali labour contributed to only 0.1 per cent of the total foreign labour in

1998, by 2004 they accounted for 9.2 per cent. Similarly, migrant labour from

Myanmar constituted 1.3 per cent to total foreign workers in 1998, gradually

rising to 4.2 per in 2004.

The profile of foreign workers corresponds to the changing pattern of Malaysias

economic development. In the early 1970s the booming agriculture sector

necessitated the inflow of migrant labour, and came to take up almost half the

labour force employed in that sector. With the winding down of agriculture and

the rising importance of manufacturing, the phenomenon of domestic rural-urban

migration took place and the sum total of these factors pressed for more foreign

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workers in the unskilled sections of the sector, that, anyway, was labour-intensive.

Indonesian workers with no formal education quite easily filled this gap since

domestic labour was more attracted to working in the urban-based manufacturing

sector. These factors triggered the inflow of foreign labour from Indonesia.Generally, there has been a situation of policy neglect over the presence of illegal

migrant workers and, aside from occasional official outbursts, the inflow of

migrant labour has not been effectively stemmed, something that encourages the

continued presence of undocumented labour in this sector.

Nonetheless, the number of documented foreign workers has increased

considerably since the 1970s. A structurally similar set of circumstances explainsthe inflow of foreign labour into the manufacturing sector. The excess demand for

low-cost, unskilled and labour-intensive operations in manufacturing acts as a pull

factor for foreign labour as it does for the construction sector. The construction

sector requires labour that can undertake considerable risk, particularly in the

construction of high-rise buildings. Construction activities can be carried out

beyond regular working hours and at times round-the-clock and domestic labour is

noted to be reluctant to participate in such work at the prevailing wage rates.

The services sector is growing rapidly and is set to be the engine for economic

growth as Malaysia moves towards developed country status. Accordingly, the

demand for labour in this sector will increase. Nevertheless, the increasing

participation of migrant workers in the services sector stems from the low-cost,

unskilled segment of the labour demanded. Typically, the migrant workers in this

sector are employed in restaurants, hotels and as domestic maids. Domestic maids

account for slightly more than 50 per cent of the total foreign labour employed in

the services sector. The foreign workers employed in restaurants and as domestic

maids work very long hours (18 hours is not unusual in many restaurants), without

medical benefits and with no leave. Under these terms of employment and at the

wage rate that is offered to migrant workers it is impossible to find locals who are

willing to supply their labour. This explains why the number of domestic maids

has increased sharply from 75,300 persons in 1997 to 261,006 persons as at July

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2004.

There is a slight change in the landscape of migrant workers with the excess

demand for highly skilled and knowledge-intensive workers. This is a fairlyrecent category that has come up with Malaysias own development towards being

a knowledge economy. However, this is a small segment of the migrant labour

supply, and at present accounts for about three per cent of the migrant workers in

the country. These workers, or expatriates, are professionals and highly skilled

workers who are typically employed in the technical aspects of manufacturing, the

oil and gas (O&G) industry, construction and services. A significant number of

expatriates supply the labour needs of the more knowledge-intensive sections of the services sector, particularly in health, education and the ICT related industries.

For instance, there are 700 expatriates employed in the Multimedia Super Corridor

(MSC), 70 per cent of whom are software developers, systems analysts, web

designers and systems engineers. Similarly, there are 711 expatriates employed in

Malaysias public hospitals (as at 2004), 478 of whom are medical officers and

233 of whom are medical specialists.

The highly skilled or knowledge-intensive migrant workers constitute a different

section of the foreign labour supply and cannot be lumped together with other

migrant workers. One of the distinguishing features of expatriate workers is that

they are paid competitive salaries and have the liberty of entering or leaving the

labour market on their free will. Secondly, expatriates receive all the benefits of

employment (leave, medical benefits, relocation costs, EPF) that locals enjoy.

Thirdly, they do not depress the wages in their segment of the labour market, and

so are not guilty of distorting the labour market. These being some of the features

that separate them from the unskilled migrant workers a separate treatment of the

issues relating to their employment is called for; the impact of expatriate

employment on the labour market would require a different study.

The picture of migrant labour that emerges - and one that is of concern - is that of

workers with low endowments who are subject to the vagaries of unscrupulous

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employers. These workers have low endowments in the sense that they have little

or no education, are unskilled, and are willing to undertake tedious and hazardous

jobs. Nevertheless, the wages that these workers would earn in Malaysia would

be in excess of what they could earn in the labour markets in their respectivecountries; this explains the push to seek employment in Malaysia. From the

point of view of the employers, jobs that require no skills can profitably be

performed by migrant workers who require low payments, and it is to the

employers advantage, since the local labour force is averse to doing such work.

The presence of weak institutional conditions such as lax enforcement, laws that

can be circumvented, difficult border controls and corruption allows for the entry

of illegal foreign workers, which doubly works in the favour of employers. Theavailability of illegal workers depresses the wages that need to be paid to foreign

workers, distorts the labour market, and sends signals that result in the

misallocation of resources, possibly thwarting the long-run development of the

economy.

The foregoing account of trends in migrant labour inflow suggests that migrant

labour is used as a buffer to cushion excess demand for labour, when the need for

it arises. Further, the ad hoc and inconsistent manner in which policies on migrant

labour have been formulated lend credence to this argument. The supply of

migrant labour is treated as a reserve army of surplus labour that is drawn upon

on occasions of shortage for unskilled labour. The economic conditions in

neighbouring countries, particularly Indonesia, allow this, because the low wages

and conditions of poverty serve as push factors for workers to seek employment,

even if it be illegal, in Malaysia. As we have observed, the number of migrant

workers in Malaysia increases when there is high economic growth and

conversely decreases when the economy is under duress. This was most obvious

after the 1997 economic crisis that affected Malaysia.

Using migrant labour as buffer has its advantages and problems. One obvious

advantage of the strategy of using migrant labour as a reserve of surplus labour is

that it helps to keep wage rates down. This is not a strategy that is openly

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acknowledged. The point that domestic workers are not keen on performing

certain jobs is highlighted by firms in lobbying for the need to allow easy access

for migrant workers. Second, having a readily available surplus at hand helps to

relieve labour shortages when they occur; it facilitates a smoother and more rapidreturn to labour market equilibrium. The disadvantages to the labour reserve

policy merit attention. First, using migrant workers as agents to depress the

domestic labour market tends to lead to the exploitation of foreign workers.

Second, upholding a reserve migrant labour policy sends incorrect signals about

the state of labour supply and it can have a distortionary effect on the allocation of

resources.

ASPECTS OF THE ECONOMIC IMPACT OF MIGRANT LABOUR

As we have seen in a previous section, there is considerable participation of

migrant labour in the agriculture, manufacturing, construction and services sectors

in jobs that do not require education or a high level of skills. A detailed

breakdown of the jobs within each sub-sector with the share of participation of

migrant labour is not available. This hampers any analysis of the impact of

migrant labour on the economy, especially when it comes to the involvement of

migrant labour on an industry-wise study; it becomes difficult to be specific about

industries or types of jobs where migrant workers predominate.

Nonetheless, the figures that have been presented earlier indicate the broad

participation of migrant labour across the key sectors. It is clear that the

Malaysian economy is hugely dependent on migrant labour. Kanapathys (2004)

study makes the extent of this dependence abundantly clear when she attempts to

trace the impact of a reduction in migrant labour on the economy. The

counterfactual that she poses is: what if there is a 20 per cent repatriation of

migrant workers. Kanapathys simulation suggests that the consequences of such

an outflow of labour could have deleterious effects on the macroeconomy. It is

assumed that this proportion of migrant workers includes unskilled and semi-

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skilled workers, whose departure would raise the average real wage in the

economy by 0.5 per cent. The consequences are seen to be far-reaching, affecting

imports, exports and the terms of trade. Also, the consumption, investments and

wage rates would be affected. Naturally, there would be an impact on theconsumer price index and GDP. As one would expect, and if migrant labour has

made a positive contribution to the economy, the exodus of workers would disturb

the prevailing equilibrium position. Local labour being more expensive, the

outward flow of migrant workers would raise the average real wages by 0.5 per

cent in Kanapathys model. The higher wage rates would, in the first instance,

affect Malaysias external sector, given the predominance of foreign workers in

export-oriented sectors. This is estimated to raise export prices by 0.1 per cent,and reduce exports by 0.9 per cent. Imports are expected to decline, because

Malaysias exports rely heavily on imports as inputs. This would result in a

depreciation of the ringgit (0.6 per cent), a drop in government demand (1.1 per

cent) and declines in real household consumption (0.8 per cent) and total

investment (1.4 per cent). The net result of migrant labour repatriation in this

model is an estimated 1.1 per cent fall in the GDP as well as mild inflationary

pressures. The estimates produced by this simulation exercise closely correspond

with the intuitive observation that the economy is, indeed, dependent on migrant

labour.

Narayanan and Lai (2005) point out that labour demand in the construction sector

has far exceeded the supply of construction workers. In their account, the supply

of migrant labour has not been entirely sufficient to meet the rising demand for

labour, except in recession years. The excess demand for labour, they claim, has

pushed the general wage rate upwards and that in spite of the supply of foreign

workers. The foreign workers have had a beneficial role to play in the labour

market in so far as the possible dampening effect migrant workers could have

played in the face of the upward movement of wages. In other words, the acute

shortage of workers stimulated the push towards higher wages, but the availability

of migrant workers did not nullify the upswing in wages, only they helped contain

the upward movement.

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Recent trends in wages suggest that salaries being paid to workers in the

construction industry have been going up. The number of workers employed in

this sector has been sliding down and so has the total wage bill paid. Theconstruction sector has lost the vibrancy that it had in the pre-crisis days, and

attempts are being made to revive activity in this sector; but the evidence that is

available clearly shows that the annual salary per employee has been on the rise

since 1995 (Table 7). In 1995 the average salary per employee was about RM14,

700 as against RM20, 000 in 2002. The law does not favour discrimination

against migrant workers in the award of wages and employers are required, by the

law, to contribute to the social security scheme for foreign workers employed.Employers are also required to pay the employment levy that is imposed on

foreign workers. The actual practise is quite different from that prescribed by the

law, particularly with the availability of undocumented workers. The second

weakness that runs through the construction industry is the presence of contractors

who are not registered as legal entities but to whom work is sub-contracted.

These smaller contractors depend heavily on illegal migrant workers.

There are two constraints that are felt within the construction sector: a) an

adequate supply of local workers who are willing to work at the prevailing wage

rate, and b) local workers who are willing to work under prevailing conditions of

work. The latter is a constraint in so far as local workers would expect adequate

leave (for example on Sundays, public holidays or when religious festivals are

observed), medical and other benefits and they are not generally willing to work

beyond the legally stipulated work hours unless adequate reward is given. Even

when local workers receive the same wages that are paid to migrant workers, they

are more demanding in terms of their rights as workers, and that raises the

opportunity cost of employers, who, therefore, prefer to employ foreign labour.

These factors equally affect the agriculture sector, particularly in the plantations.

It is well-recognised that work in oil palm plantations is tiring and tedious (since

one works under the sun), dangerous (because these plantations are infested with

snakes and also because when the palm fruit is harvested it could fall and deeply

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cut ones body) and unattractive (due to the poor accommodation that is provided

and the absence of facilities for entertainment or social interaction). Obviously,

local labour would demand much more than is presently being paid migrant

workers.

There is no published data on the wage rate in the agriculture sector, making it

difficult to assess how migrant labour has affected wage levels in agriculture. The

next most important sector that employs migrant workers is the manufacturing

sector where 20 per cent of all foreign labour finds employment, being next in

importance to the agriculture sector that employs about 30 per cent of all non-

Malaysians working in the country. The number of workers in the manufacturingsector has been more or less stable since 1999 to the present time, fluctuating

narrowly around 148,000. The total wages paid out to the workers in

manufacturing has been rising steadily but slowly (Table 8). The number of

employees in this sector was about 13,000 in 1999, rose close to 14,000 in 2001

and was about 15,000 in 2003. The average annual salary per employee was

RM18,878 in 2003 from RM15,917 in 1999. There was a five per cent increase

in the salary per employee from 1999 to 200, but more recently the growth in

salary has been more sedate, increasing by 2.5 per cent from 2002 to 2003.

The manufacturing sector employs a large number of migrant workers. The

profile of migrant labour in the manufacturing sector is not quite similar to that of

the agriculture or services sectors for two reasons. First, there is a large number

of Bangladeshis in this sector unlike in the other sectors where the bulk is made

up of Indonesians with little education and no skills. Second, many of the foreign

workers are semi-skilled. As in the other sectors the supply of migrant workers

has kept a cap on wage increases besides relieving the acute labour shortage.

Many sub-sectors such as furniture manufacturing, and the production of

machinery and steel products depend on migrant labour, although their presence in

the manufacturing sector is well spread out and is not restricted to these sectors.

The manufacturing sector, being export-oriented and an important (if not crucial)

driver of economic growth in Malaysia, carries the key to the countrys economic

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development. It follows that an adequate supply of labour to this sector as well as

stable wage rates are important for the macroeconomic stability and growth of the

economy.

Another sector where the migrant workers play an important role is in the services

sector. Here they are important for the hotels and restaurants sub-sector and also

as maids (Table 9). Five per cent of foreign workers are in the hotels and

restaurants sub-sector. The number of domestic maids has been increasing very

rapidly. While in 2004 there were at least 261,000 maids, in 1997 there were only

about 75,000 foreign workers in this employment category, implying a 300 per

cent increase. The presence of female foreign workers in Malaysia has aninteresting influence on the gender structure of domestic labour utilisation since a

large number of women would not be able to take up employment in the labour

market if not for these domestic maids. The availability of a supply of females as

maids releases Malaysian women from their commitment to domestic chores and

seek paid employment. The lack of facilities that are provided by the public and

private sector employers for the care of children would otherwise constrain the

present flexibility in substituting time spent in performing household tasks to

accepting paid employment. The contribution of Malaysian women to GDP

would be lower without female migrant workers, although statistical estimates are

not available to fix a range on the shortfall that could result.

All in all, it is strikingly clear that the Malaysian economy relies to a very great

extent on migrant workers. What is surprising is the lack of a long-term policy on

foreign labour given the dependence on migrant workers. This is shocking

because crucial issues seem to be ignored amidst the ad hoc manner in which

migrant labour is used (most often) and banned (at times). First, it appears that

ethical issues surrounding the rights of migrant workers have received scant

attention. This is a question that will be addressed in the next section. Second,

the constant switches in policy decisions suggest that the government is not

willing to grapple with the long-term impact of migrant workers. Both these

issues jointly imply that no serious thinking has been done to develop a

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sustainable and consistent policy position on migrant labour in the context of

Malaysias own development trajectory.

Before we proceed to discuss the long-term implications of migrant labour itwould do well to consider if foreign workers have made any contribution to the

productivity growth of the sectors in which their participation is high. The

productivity growth rate in mining was 1.24 per cent in 2000 and 2.11 per cent in

2003, considering the period 2000 to 2003 the average productivity growth has

been 1.2 per cent (Table 10). Since 2004 the productivity growth has been

slightly higher. For the period 2000-2003 the rate of increase in wages has been

higher (as we saw earlier). If even with a supply of migrant labour (which offers alower opportunity cost than domestic labour) the wage increases are outstripping

productivity increases, there is little doubt that the situation would be worse if

migrant labour were not available. The productivity growth in services and

manufacturing was relatively high in 2000 (3 per cent and 11 per cent,

respectively) and has subsequently been in decline, although it rose in 2006 but

not to 2000 levels. In these sectors, too, the growth in wage rates exceeded that of

productivity. The same is observed for the construction sector (Narayanan and

Lai, 2006). Maintaining a supply of cheap migrant labour has been useful in

minimising the extent to which wage increases exceeded productivity increases,

although it would definitely have been preferable if the growth in productivity was

greater than wage increases.

The profile of jobs that migrant workers have been employed (and continue to be

employed) in are those that are no longer attractive to domestic labour. In fact,

the local labour force is averse to these jobs since they have other alternative

forms of employment (or self-employment). Female foreign workers have been

very useful in freeing local women to actively participate in the labour force; and

this has helped them contribute to GDP. Further, the expatriation of foreign

workers could lead to a decrease in exports and GDP. The supply of migrant

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labour (legal and illegal) has kept an upper boundary on wage rate increases. The

impact that foreign workers have on wage rates is a pivotal issue and constitutes

the central mechanism through which the effect of the supply of foreign labour

expresses itself on the Malaysian economy.

The relatively low wages that are possible with migrant labour, than would

otherwise prevail, makes Malaysian exports correspondingly attractive. This

sustains high exports and the resultant GDP and growth rates. A decrease in

exports would also affect Malaysias balance of trade and exchange rate status.

Also, low wages in the manufacturing and services sectors help, to an extent, keep

inflationary pressures under control. Given the alternatives to employment thatare available to the local labour force a very much higher wage rate than currently

prevails would be necessary to attract them to undertake the jobs that foreign

workers are presently employed in. It is hard to imagine locals working in

restaurants, as plantation labourers, construction site workers or in non-automated

factories involving labour-intensive operations, and definitely not as domestic

maids.

The fact that the opportunity cost of employing a migrant worker is lower, to an

employer, than employing a local worker with comparable skills does carry with it

a distinct, but not immediately recognisable, problem. As has been alluded to in a

previous section the less costly supply of migrant labour directs resources to

industries in which foreign workers can be procured, and by so doing signals the

profitability of these industries. The price signals that emanate from those

markets in which migrant workers are proportionately active are distorted

because, as we have mentioned earlier, the full cost of their labour is not paid.

This results in the misallocation of resources since investment is directed into

those industries with migrant workers. This phenomenon also encourages the

inflow of illegal workers. If laws are fully enforced and the rights of workers

respected, the wages rates of migrant workers would go up, and so would the

prevailing wage rates in those sectors.

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There is a long-term danger attached with keeping the wages of migrant workers

artificially low. The continued supply of migrant labour would create the illusion

that labour-intensive methods of production and such industries are profitable.

This will encourage the growth of these industries and hamper their industrialupgrading. The Second Industrial Master Plan (IMP2) (Ministry of International

Trade and Industry, 1996) envisions industrial development where value-added

production predominates; and this complements the development of a knowledge-

based economy. This vision continues into the Third Industrial Master Plan

(Ministry of International Trade and Industry, 2005) However, promoting the

plantation sector, low-technology construction does little to encourage industrial

upgrading and the transformation to an economy that is more technology-based.The dependence on migrant labour will delay automation and the decay of labour-

intensive activities such as agriculture. Clearly, the long-term development of the

economy is constricted because of the abundant supply of migrant labour whose

costs are not fully paid. There is no problem per se with using migrant labour, but

in the Malaysian case it will delay the decay of inefficient economic activities and

hamper economic transformation.

SOME ETHICAL ISSUES

As we have seen, the government has not taken a consistent and holistic approach

towards the design of migrant labour policies. Although there is no doubt that

migrant workers have made a positive contribution towards the economic

development of Malaysia, there is scant consideration for their rights. This raises

ethical issues, which are of intrinsic value; but there are also economic questions

that are associated with the disregard for the rights of workers. A poorly

formulated policy on migrant labour with defective enforcement mechanisms

encourages the inflow of undocumented workers; it also results in the lack of

access to health care, adequate housing, and violations of their human rights. To

accord proper work conditions, health care, and housing to migrant workers

involve costs; but by not doing so there is the possibility of creating wider

problems that come with the spread of disease and the social problems that

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disenfranchised workers could create.

In recent years the government has launched at least two major operations to

penalise undocumented immigrants. One such attempt was made in 2002, inwhich 450,000 undocumented migrants were repatriated. In 2005 another

400,000 illegal migrants were sent back, although it is estimated that there were

1.2 million undocumented migrants in Malaysia at that time. The Immigration

Act (Section 6) allows for migrant workers without adequate documentation to be

whipped and imprisoned. Trade unions and non-governmental organisations have

raised their concern over the harshness of these penalties (see MTUC 2005, for

instance). Rather than to systematically and consistently prevent illegal workersfrom entering and staying in the country the authorities act harshly at sporadic

intervals. The poor enforcement mechanisms have been fully exploited by

employers, and MTUC (2005) notes that, undocumented migrant workers are

often forced to work more for less and often without basic facilities such as

housing, medical care, overtime payment. As if in justification for its

lackadaisical and irregular enforcement efforts, the government offers the

following rationalisation:

Preventive measures to stop illegal workers are very costly, time

consuming and involve a large number of enforcement personnel from

the Police, Immigration, Armed Forces and RELA. Enforcement

operations to reduce illegal workers faced many obstacles, such as

space constraint at the twelve detention camps, which can only

accommodate about 12,000 detainees at any one time. The

Government spends about RM3-RM4 million per year providing meals

to the detainees. (p. 74, Economic Report, 2004/2005)

One of the most frequent violations of labour rights has been the non-payment of

wages and unfair dismissal of migrant workers. During the period 2000-2005

MTUC itself handled cases for 1,200 migrants on grounds of non-payment of

wages and unfair dismissal. The immigration process does not permit even

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documented foreign workers to pursue their grievances through the Labour Court

because the Immigration Department does not offer visas for such reasons. When

migrant workers are known to initiate legal proceedings against their employers

the employers cancel their work passes which renders the migrant workersundocumented.

Second, most migrant workers do not have employment contracts and are not

aware of the need for contracts. The fact that migrant workers are issued work

permits that allow them to be employed by a particular employer allows abuse

since they are not able to seek alternate employment when cheated by employers.

It has been observed that the contract presented to migrant workers on arrival inMalaysia is less favourable than that agreed upon prior to their departure from

their home country.

Illegal or undocumented migrant workers do not have any access to health care

services because they fall within the informal sector. The same is the case with

domestic maids, who, though legally employed, do not have the support of

association or employment contracts. In fact, legal migrant workers are not better-

off in regard to their access to health care, because as Verghis (2005) notes the

Malaysian health policy presumes that migrants place a burden on an over

stretched public health services system. She goes on to elaborate that migrants

admitted to public hospitals pay first class fees, but will be entitled only to third

class treatment, a practise that is unfair and blatantly discriminatory.

Migrant workers are deprived of their rights as workers. The absence of adequate

on-site inspection by appropriate officers and the ineffective enforcement of the

law have led to continued abuse of the rights of migrant workers. Nelson (2007)

notes that some of the violations of migrant workers rights include the absence of

any off days, long working hours and bad living and working conditions. Migrant

workers often have limited freedom to interact as they choose and are often

isolated from the outside world. Employers often withhold the visas and travel

documentation of migrant workers, making them, technically, undocumented

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workers, which leaves them vulnerable to exploitation and abuse, even sexual

abuse from enforcement officers.

Obviously, the rights of migrant workers have been ignored and it necessary thatthey be addressed since they have economic consequences. Perhaps at the

broadest level Malaysias commitment to the rights of migrant workers can be

affirmed as a first step. Malaysia has not ratified the International Covenant on

Economic, Social and Cultural Rights (ICESCR), and this is perhaps an issue that

needs to be examined more closely. Second, the government needs to play a

firmer role as a regulatory agent in the inflow of migrant workers. There is

considerable abuse that comes about from the unregulated recruitment of foreignworkers, which at present is done by private agents. The unscrupulous practises

of employment agencies have led to foreign workers being stranded and without

being able to find employment. A firmer policy on recruitment is required.

Finally, more active execution of inspection and enforcement is essential.

CONCLUDING REMARKS

As Malaysias industrialisation process has deepened, its reliance on migrant

labour has increased. Malaysias industrialisation programme has produced two

effects: a) the rural-urban migration of local labour and b) the withering of the

agriculture sector. The agriculture sector has, consequently, come to be seen as

unattractive, both in terms of wages and in terms of work conditions. This has

created excess demand for labour in the agriculture sector, particularly in theplantations. On the other hand, the greater emphasis on export-oriented

manufacturing has also created acute shortages of labour. This has been felt, to an

increasing extent, in the manufacturing sector, but it is a phenomenon that is also

encountered in the construction and services sectors. At any rate, the net result is

increasing demand for migrant workers.

As the evidence indicates, Malaysia has had a continuous inflow of migrant

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workers, and their contribution to the economy is important. Nevertheless, the

record of events suggests that the governments policies on migrant labour have

been piecemeal in the sense that the policy responses are directed at exigencies at

particular junctures in the economy. One of the problems appears to be a lack of policy consistency that is driven on one hand by felt need for migrant labour. On

the other hand there is the reluctance to be overly dependent on foreign workers as

well as responses to downturns in the economy that trigger adjustments in the

demand for labour. The presence of foreign labour that can be easily repatriated

facilitates these labour market adjustments.

Migrant labour does make a positive contribution to the economy at present in thatit fills those jobs that are unattractive to local labour. Besides, foreign workers

help to keep a limit on upward wage spirals and they encourage local women to

participate in the labour market. But the continued presence of migrant labour

does have possible negative consequences. First, the supply of foreign workers

results in the misallocation of investments. Second, the availability of relatively

cheap (foreign) labour delays technological progress at the firm-level, and thus

slows the long-term industrial upgrading of the economy.

What is perhaps most worrying is the relative neglect for the rights of foreign

workers. A policy on migrant labour that acknowledges that migrant workers

have human rights would be useful both intrinsically as well as in terms of the

economic outcomes it would generate. The lack of strict enforcement of

regulations encourages the abuse of foreign workers by employers and recruitment

agencies. Further, it is necessary to devise policies and implementation

procedures with explicit concern for the rights aspect of migrant workers. This

will not only safeguard the rights of workers, but it will also allay the threat of

social problems and mop up the excess surplus that employer enjoy through the

employment of migrant workers.

REFERENCES

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Department of Statistics2006 Yearbook of Statistics , Department of Statistics, Kuala Lumpur

Kanapathy, V.2004 Economic Recovery, the Labour Market and Migrant Workers in

Malaysia, Paper prepared for the 2004 Workshop on InternationalMigration and Labour Markets in Asia, organised by the JapanInstitute for Labour Policy and Training, Tokyo

Kanapathy, V.2006 Migrant Workers in Malaysia: An Overview, paper prepared for

the Workshop on an East Asian Cooperation Framework for Migrant Labour, organised by the Network of East Asian Think Tanks (NEAT), 6-7 December, Kuala Lumpur

Ministry of International Trade and Industry1996 Second Industrial Master Plan: 1996-2005 , Ministry of

International Trade and Industry, Kuala Lumpur

Ministry of International Trade and Industry2005 Third Industrial Master Plan: 2006-2020 , Ministry of International

Trade and Industry, Kuala Lumpur

Ministry of Finance, Economic Report (Various issues), Ministry of Finance, KualaLumpur

Malaysian Trades Union Congress (MTUC)2005 Country Report: Migrant Workers Situation in Malaysia:

Overview and Concerns, The Japan Institute for Labour Policyand Training, Tokyo

National Productivity Corporation (NPC),2006 Productivity Report 2006 , National Productivity Corporation,

Kuala Lumpur

Narayanan, S. and Y-W Lai2005 The Causes and Consequences of Immigrant Labour in theConstruction Sector in Malaysia International Migration , Vol. 43

No. 5

Navamukundan, A.2002 Labour Migration in Malaysia Trade Union Views, in Labour

Education 4/2002, No. 129, ILO(http://www.ilo.org/public/english/dialogue/actrav/publ/129/)

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Nelson, N.C.2007 Gender, Migration and HIV: Impact on Women in the Context of

International Political Economy, Mimeo, CARAM Asia, KualaLumpur

The Star 2007 Policy change on Foreign Workers Irks Employers, 4 October

Tey, N.P.1997 Migration Issues in the Asia Pacific: Issues Paper from Malaysia

in P. Brownlee and C. Mitchell (1997), Migration Issues in theAsia Pacific, Working Paper No.1, UNESCO-MOST and AsiaPacific Migration Research Network (APMRN).

Verghis, S.2005 Policy Issues and Concerns with Regards to Migrant Health in

Malaysia, Paper prepared for the Roundtable on Migration andRefugee Issues organised by UNHCR, Kuala Lumpur, 13-14 June.

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Table 1

Labour Force, Unemployment and Unemployment Rate in Malaysia1980-2006

Labour Force UnemploymentUnemployment

Rate

000 % Change 000 %

1980 5,380 3.1 563 5.6

1981 5,020 -6.7 271 4.7

1982 5,140 2.4 276 4.61983 5,250 2.1 336 5.2

1984 5,380 2.5 360 6.3

1985 6,039 12.2 414 6.9

1986 6,222 3.0 515 8.3

1987 6,409 3.0 528 8.2

1988 6,622 3.3 534 8.1

1989 6,834 3.2 444 7.1

1990 7,047 3.1 218 6.0

1990 7,258 3.0 217 5.6

1992 7,461 2.8 211 3.7

1993 7,627 2.2 129 3.0

1994 7,834 2.7 155 2.9

1995 8,257 5.4 258 3.1

1996 8,641 4.7 215 2.5

1997 9,038 4.6 221 2.4

1998 8,881 -1.7 284 3.2

1999 9,178 3.3 308 3.4

2000 9,573 4.3 301 3.1

2001 9,724 1.6 345 3.6

2002 10,064 3.5 355 3.5

2003 10,426 3.6 379 3.6

2004 10,846 4.0 382 3.5

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2005 11,291 4.1 396 3.5

2006 11,544 2.2 385 3.3

Source: Economic Report, Ministry of Finance, Malaysia (1980/1981 - 2007/2008)

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Table 2

Malaysia: GDP by Sector, 1970-2005 (% share)

Sectors 1970 1980 1990 1995 2000 2005

Agriculture 33.6 22.2 16.3 10.3 8.9 8.2

Mining 7.2 9.2 9.4 8.2 7.3 6.7

Manufacturing 12.8 20.2 24.6 27.1 31.9 31.6

Construction 3.8 4.5 3.5 4.4 3.3 2.7

Total services 42.6 43.9 46.1 50.0 48.6 50.8

Business Services 23.3 30.9 37.3 42.9 41.8 43.3Government services 19.3 13.0 8.8 7.1 6.8 7.5

Total 100.0 100.0 100.0 100.0 100.0 100.0

Source: Department of Statistics, Malaysia

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Table 3

Malaysia: Employment by Sector, 1970-2005 (% share)

Sectors 1970 1980 1990 1995 2000 2005

Agriculture 53.5 39.7 27.7 18.7 15.2 12.0

Mining 2.6 1.7 0.7 0.5 0.4 0.4

Manufacturing 8.7 15.7 19.5 25.3 27.6 29.5

Construction 2.7 5.6 6.4 9.0 8.1 8.1

Total services 32.5 37.3 45.7 46.5 48.7 50.0

Business services 16.8 23.6 32.9 35.4 38.1 40.2

Government services 15.7 13.7 12.8 11.1 10.6 9.8

Total 100.0 100.0 100.0 100.0 100.0 100.0

Source: Economic Planning Unit

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Table 4:Employment in various sectors in Malaysia from 1980 to 2006

Agriculture Mining Manufacturing Construction Services'000 % '000 % '000 % '000 % '000 %

1980 1,911 -7.1 80.0 -11.1 755 0.0 270 10.7 1,801 1.21981 1,934 1.2 76.0 -5.0 787 4.2 299 10.7 1,924 6.81982 1,929 -0.3 69.0 -9.2 799 1.5 318 6.4 2,026 5.31983 1,925 -0.2 66.0 -4.3 815 2.0 340 6.9 2,105 3.91984 1,932 0.4 67.0 1.5 844 3.6 349 2.6 2,190 4.01985 1,760 -8.9 44.0 -34.3 855 1.3 429 22.9 2,536 15.81986 1,807 2.7 37.0 -15.9 861 0.7 382 -11.0 2,620 3.31987 1,876 3.8 37.0 0.0 921 7.0 355 -7.1 2,693 2.81988 1,908 1.7 37.0 0.0 1,013 10.0 356 0.3 2,773 3.01989 1,833 -3.9 33.0 -10.8 1,171 15.6 377 5.9 2,976 7.31990 1,889 3.1 29.0 -12.1 1,333 13.8 424 12.5 3,154 6.01991 1,833 -3.0 33.0 13.8 1,470 10.3 465 9.7 3,240 2.71992 1,738 -5.2 37.0 12.1 1,639 11.5 507 9.0 3,329 2.71993 1,680 -3.3 36.0 -2.7 1,742 6.3 544 7.3 3,496 5.01994 1,585 -5.7 36.0 0.0 1,892 8.6 598 9.9 3,568 2.11995 1,493 -5.8 40.5 12.5 2,028 7.2 717 19.9 3,721 4.31996 1,492 -0.1 41.0 1.2 2,230 10.0 796 11.0 3,868 3.91997 1,468 -1.6 41.7 1.7 2,375 6.5 876 10.1 4,057 4.91998 1,401 -4.6 42.2 1.2 2,277 -4.1 810 -7.6 4,067 0.21999 1,427 1.8 41.7 -1.2 2,343 2.9 749 -7.5 4,310 6.02000 1,408 -1.3 41.2 -1.2 2,558 9.2 755 0.8 4,509 4.62001 1,406 -0.1 40.9 -0.7 2,461 -3.8 770 2.0 4,702 4.32002 1,405 0.0 41.2 0.7 2,519 2.4 770 0.1 4,974 5.82003 1,402 -0.2 41.7 1.2 2,698 7.1 780 1.2 5,126 3.12004 1,397 -0.3 42.2 1.2 2,870 6.4 771 -1.2 5,384 5.02005 1,386 -0.8 42.6 0.9 2,990 4.2 775 0.6 5,701 5.92006 1,392 0.5 42.6 0.0 3,244 8.5 755 -2.6 5,725 0.4

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Source: Economic Report, Ministry of Finance, Malaysia (1980/1981 2007/2008)

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Table 5

Composition of Foreign Workers by Country of Origin (%)

1998 1999 2000 2001 2002 2003 2004

Indonesia 53.3 65.7 69.4 68.4 64.7 63.8 66.5

Nepal 0.1 0.1 0.1 7.3 9.7 9.7 9.2

Bangladesh 37.1 27 24.6 17.1 9.7 8.4 8

India 3.6 3.2 3 4 4.6 5.6 4.5

Myanmar 1.3 0.9 0.5 1 3.3 4.3 4.2

Philippines 207 1.8 1.2 1 0.8 0.6 1.1

Thailand 0.7 0.5 0.4 0.4 2.4 0.9 1

Pakistan 1 0.6 0.5 0.4 0.2 0.2 0.1

Others 0.2 0.2 0.3 0.4 4.6 6.5 5.4

Total 100 100 100 100 100 100 100

Source:Department of Immigration

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Table 6Estimates of Registered Migrant Workers (Skilled and Semi-skilled)

Year No. of Workers1993 532,723

1994 642,057

1995 726,689

1996 745,239

1997 1,471,562

1998 1,127,652

1999 897,705

2000 799,685

2001 807,984

2002 n.a.

2003 n.a.

2004 1,359,500

2005 1,944,646

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Table 7

Salaries per employee (Construction industry)

No. of employeeSalaries and wages paid

(RM million)Salary per employee

(RM)%

change

1995 524,457 7,712 14,704.73 -

1996 604,453 10,013 16,565.39 12.65

1998 547,509 9,687 17,692.86 6.81

2000 456,711 8,722 19,097.42 7.94

2002 454,274 9,108 20,049.57 4.99

Source: Yearbook of Statistics, Department of Statistics, Malaysia (2006)

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Table 8

Salaries per employee (Manufacturing Industry)

No. of employees

Salaries and wages paid(RM million)

Salary per employee(RM)

%change

1999 1,347,156 21,443 15,917.23 -

2000 1,560,922 26,123 16,735.62 5.14

2001 1,379,831 24,571 17,807.25 6.40

2002 1,477,247 27,214 18,422.1 3.45

2003 1,490,452 2,137 18,878.16 2.47


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Table 9

Salaries per employee (Hotels and others lodging places)

No. of employee

Salaries and wages paid(RM thousand)

salary per employee(RM)

%change

1996 68542 781739 11405.25517 -

1998 69382 850475 12257.86227 7.48

2000 82864 1082929 13068.75121 6.62

2002 80322 1159819 14439.61804 10.49

2003 78062 1146699 14689.59289 1.73


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Table 10

Malaysia: Productivity growth of the economic sector, 2000-2006

Sectors 2000 2001 2002 2003 2004 2005 2006 Average

Mining 1.24 -0.38 1.9 2.11 3.57 1.65 1.79 1.70

Utilities 3.86 2.53 2.93 3.12 2.9 4.92 4.52 3.54

Finance 2.5 4.93 2.75 2.81 2.4 3.86 4.06 3.33

Transport 3.76 2.12 1.35 2.15 3.2 4.03 4.07 2.95

Manufacturing 11.05 -3.42 3.32 5.31 6.1 3.76 4.42 4.36

Trade 2.37 1.54 1.14 3.24 2.4 2.67 2.15 2.22

Other services 2.87 0.13 1.03 2.12 1.76 1.19 1.51 1.52

Govt. services 4.95 3.52 3.36 3.37 3.3 3.35 3.42 3.61

Agriculture 0.52 2.29 1.11 1.92 2.5 2.58 3.41 2.05

Construction 2.33 0.39 2.51 2.55 -0.3 -0.74 0.47 1.03

GDP 8.5 0.4 4.24 5.2 7.1 5.3 5.9 5.23

Source: Productivity Report, National Productivity Corporation, Malaysia (2000 2006)

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