Job Crunch

Malaysia

Economic News

22 Jul 2010
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Recent controversy over illegal Bangladeshi workers is expected to stimulate a clampdown on labour migration in coming months - yet Malaysia's economy still needs to import workers. The employment market is thus emerging one of the greatest fetters on future growth.



According to reports carried in local papers, part of the controversy is due to illegal Bangladeshi male immigrants allegedly causing social disruptions. The problem of foreign workers is not a new one, however, and in 2004 employers were being prevented from recruiting them.



Home Affairs Minister Radzi Sheikh Ahmad claimed that labour agents have been making arrangements with colleges for student visas for the workers, enabling them to travel to Malaysia.



Suspicions were aroused by the fact that some colleges were registering large numbers of Bangladeshi students for English studies when their country already has a high level of spoken English.



Importing labour is essential in Malaysia these days though, with immigrant labour accounting for 10% of the national workforce, according to official government statistics. The actual number is believed to be much higher, due to the number of illegal workers.



With almost 1m legal workers and some estimates of as many as another million illegal entrants, the country is a major importer of labour. The situation differs from state to state and those with a land border with Indonesia show the highest proportions of migrants. In its last census, the state of Sabah, for example, listed nearly 20% of its 2.5m population as illegal foreign workers.



Penalties are stiff, including fines, prison terms and even caning for employers of illegal workers. Late 2004 saw an amnesty for some of these which allowed them to leave the country without facing these punishments, but with the amnesty over in March 2005 "Operation Tegas" began, whereby Police and People's Volunteer Corps began a search for remaining illegal workers. As many as 380,000 people are believed to have left before the hunt began.



By far the majority of Malaysia's migrant workers come from Indonesia and it was to there that many of the illegals returned. The clampdown was timed to coincide with the holy month of Ramadan, with the idea being that this would be an opportune time to encourage workers back to their homeland.



Yet the sudden disappearance of such a large number of labourers hit Malaysian employers - though to varying degrees.



"The workers mostly come on a legitimate permit to work in plantations," explained one Western diplomat to OBG during Operation Tegas. "They then disappear into the economy and end up in other sectors, mostly in construction."



Hence the pinch was particularly hard in the building sector. Major contractors, who tend to be open to more government scrutiny and therefore keep a cleaner nose, deny they were too badly affected. Smaller contractors, however, were affected and work on some projects was delayed, according to some in the sector.



"I lost a lot of very good guys," explained the disgruntled CEO of a medium-sized property development company with its own contracting subsidiary. "These were skilled workers who have been with us for years. Now what am I supposed to do?"



It is at the very bottom of the labour market that these workers are still needed. Malaysian unemployment has been around the 3% mark for a while. As growth continues to be steady, there is no real shortage of work for Malaysians.



This statistic, however, fails to capture the distortions and asymmetries in the market. Employment quotas for indigenous Malays, known as bumiputra, mean that they are guaranteed some level of employment.



"It means they do not really have to participate in low-wage jobs," continued the Western diplomat. "It is not just wages either. They enjoy a number of other economic advantages, especially university placements, meaning they end up over-qualified for low-end jobs."



With bumiputra university candidates given preference over those from other ethnic groups, those who fail to get a place at a local institution often leave the country to continue tertiary studies.



Meanwhile, Malaysian wages tend to be low by international standards. Competing as a low-cost destination for foreign-owned manufacturing operations, particularly in the electronics sector, means that Malaysian professionals can earn significantly more working abroad.



Thus, at the top end of the market, Malaysia is subject to a classic "brain drain". Whilst some study overseas and chose to stay there, others are lured away after some degree of vocational training.



Senior executives in all major economic sectors report struggling to find professional staff, particularly at the middle management level. Whilst a large number of graduates are available, they tend to be fickle about training and most companies expect to lose a proportion of graduate trainees before their work is completed.



Many of those in the crucial 2-10 years experience bracket have left Malaysia for careers in finance, engineering or manufacturing abroad.



"Some of the brightest Malaysians are sitting in offices in Hong Kong, Sydney, or even right across the border in Singapore," explained a senior Malaysian banker, talking to OBG recently. "With salaries at three times what they can get here, there is little wonder."



It is an unfortunate squeeze for the country as it seeks to follow classical economic development paths and move up the value-chain. These high-end skills are needed, especially if plans for greater innovation and increased entrepreneurship are to come to fruition.



Most agree that wage levels have to rise for professional grades if Malaysians are to be encouraged to stay and make these plans a reality. Meanwhile, longer-term solutions are in boosting vocational training and improving the education system to ensure it produces the right skills for the changing needs of the economy.



Whether Malaysian professionals start to trickle back or not, it seems certain that the need for imported labour will not abate.

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