Migrant Workers: An Inconvenient Truth?

In Malaysia, there are at least two million migrant workers mostly from Indonesia and Bangladesh, making up 15% of the total employed persons. Since Malaysia went into lockdown in March 2020, the Malaysian Trades Union Congress (MTUC) has reported cases of violation of migrant workers’ rights by their employers, including unfair termination, unpaid wages, poor living conditions and more (Top Glove is a good example). Those who were laid off would have lost their work passes, forcing them to become undocumented. Since May 2020, the Malaysian government has conducted several immigration raids, detaining more than 18,000 undocumented migrant workers. Many became infected as the over-crowded detention centres became coronavirus hotspots. These cases are just the tip of the iceberg—without any official account, the fate of other undocumented migrant workers remains largely unknown.

The Malaysian government has arguably provided only limited assistance to the migrant population. So far, one of the most prominent government initiatives related to the workers is the 25% cut for the migrant worker levy for the rest of the year.

However, even from a purely economic perspective, the “citizens’ welfare-comes-first” ideology must give way to an inclusive protection measure. Although some may argue that given limited resources, governments have an obligation to prioritise its citizens over migrants, there are several strong economic arguments against the marginalisation of migrant workers.

Malaysia’s economy has long been reliant on the migrant workforce. In 2019, migrant workers made up more than 30% of the workforce in the agriculture sector, and more than 20% in both the construction and manufacturing sectors (Figure 1). Almost half of the low-skilled workers in Malaysia were of foreign origins. For semi-skilled jobs, where the bulk of jobs are, more than one in 10 were migrant workers. Overall, it has been estimated that 22% of the establishments in Malaysia hired migrant workers.

Figure 1: Migrant workers are important to Malaysia’s economy

 

Figure 2: The importance of migrant workers in the manufacturing and services sector

In July 2020, the Malaysian government announced that migrant workers are limited to working only in the agriculture, plantation and construction sectors, as part of its strategy to keep Malaysians employed.

Despite their relatively low share of migrant workers, the manufacturing and services sectors actually hired the largest number of migrant workforce, totalling almost 1.5 million persons (Figure 2). The number of migrant workers employed in both sectors is the fastest-growing ever since 2010. Furthermore, the manufacturing sector also recorded one of the highest percentages of establishments (63%) that employed migrant workers in 2018.

The idea that without migrant workers, firms can easily hire locals to replace them misses an important point—migrant and local workers are generally imperfect substitutes. Between 2010 and 2019, most of the migrant workers who entered the labour market had at most a secondary education (Figure 3). By contrast, the Malaysian labour force is getting more educated—there have been fewer people with only primary education or less, and nearly two million more who are tertiary-educated. This partly explains why within the same decade, most migrant workers tended to go into low-skilled jobs, whereas Malaysians were mostly hired in skilled and semi-skilled occupations.

Figure 3: Migrant and local workers occupy different occupational space

Lower-educated, low-skilled migrant workers often take on jobs that are deemed dirty, dangerous and difficult (3D), which are also jobs that Malaysians usually shun. Indeed, based on a survey conducted by the Malaysian Employers Federation (MEF) involving 101 member companies, around 78% of the companies reported that the main reason for them to recruit migrant workers was the “shortage of local workers to fill vacancies”.

Hence, in requiring employers to hire only local workers post-lockdown, the government may be putting employers in a very challenging position. For example, following the government’s directive to stop hiring migrant workers, market traders at the wholesale and wet markets have found it hard to hire. The jobs that migrant workers do are often too demanding for the locals, that it now takes two locals to handle one migrant worker’s workload. As such, the market has been functioning at less than 20% of its full capacity due to the manpower disruption.

It is also observed that industries with low productivity have a high share of low-skilled foreign workers (Figure 4), with a greater reliance on longer working hours to produce output. One study found that South Korea increased real GDP per hour from USD4.7 in 1980 to USD25.4 in 2010, while Malaysia only registered an increase to USD7.1 in 2010 from USD5.3 in 2000. South Korea did this while reducing average weekly working hours from 49 hours to 44 hours from 2000 to 2008, while Malaysia  held steady at 49 hours. Malaysia’s labour-intensive methods and longer working hours are clearly less efficient than those obtained through technological advancement and automation. This is seen through the gap between Malaysia and Asia’s average usage of industrial manufacturing robots (Figure 5).

Figure 4: Productivity and Share of Foreigners by Industries

 

Figure 5: Robot Density in the Manufacturing Sector (2016)

From the workers’ perspectives, automation and new technology are bound to replace jobs, and it is Malaysians who are at the highest risk of job displacement, not migrant workers. Based on the findings by KRI, in the next two decades, 54% of all jobs in Malaysia could be displaced by technology. Four out of five of these high-risk jobs are semi-skilled jobs. Malaysians will be most affected because 86% of all semi-skilled jobs are held by Malaysians. The hollowing out of semi-skilled jobs by technology has already been evident since 2000 (Figure 6). The void is only expected to deepen further with the rapid progress in technology.

Figure 6: The disappearing middle

The road to economic transformation comes with its own set of labour and industrial challenges. Reducing Malaysia’s reliance on migrant workers could be an important policy lever to drive transformation. That pre-supposes sound labour, industrial and education policies that will see a sustainable creation of quality jobs, and prepare all Malaysians for the rapidly evolving employment landscape.

What can we do in the immediate term? We need to improve our thoughts (and deeds) on migrant workers. They are here as our guests. We cannot and will not do their jobs. There is need for compassion and basic improvements to work and living conditions. Next, we need to reduce the levy or create a graduated scale for different sectors. In addition, we need to review our automation/robotics strategy. If South Korea can do it, why can’t we?

For Malaysians, it is good if the Government planners work closely with industry and tertiary institutions. Otherwise, we may have surpluses in humanities, Islamic knowledge and/or medicine. It is disheartening for parents when their children graduate but cannot find a suitable job. Then we want more people to do STEM when the prospects seem so limited. Learn from Singapore, how to do R&D clusters or other similar strategies to encourage start-ups and innovation.

Don’t think too long! Don’t need a Vision 2030! Just look at Vision 2020, and what a disaster that has become – and as usual, no review or audit of that failure.

Going forward, Just do it! (if not buy a Nike?).

References:

1. The economic case against the marginalisation of migrant workers in Malaysia, Tan Theng Theng, Jarud Romadan, October 1^st, 2020 (https://blogs.lse.ac.uk)

2.Low-skilled foreign workers distortions to the economy, Ang Jian Wei, Athreya Murugasu, Chan Yi Wei, Economics Department, Bank Negara Malaysia, March 2018

3. Migrant workers: A forgotten economic muscle, G Vinod, Focus Malaysia, 01/12/2020