This article first appeared in The Edge Malaysia Weekly on April 12, 2021 - April 18, 2021

MALAYSIA is in a Catch 22-situation when it comes to the employment of foreign workers, a predicament it has been in for decades.

Consider the immediate present: businesses are pleading with Putrajaya to allow foreign workers now back in their homelands to return to Malaysia to help businesses recover from the impact of the Covid-19 pandemic.

But from the government’s perspective, doing so may increase the number of infections in the country and lead to another round of tighter containment measures, which in turn would hurt business continuity.

Employer groups are putting considerable pressure on the government to ease the foreign worker freeze. Last week, the Federation of Malaysian Manufacturers urged the government to lift the freeze on foreign worker recruitment in the manufacturing sector in order to support the pick-up in businesses and to assist in business recovery.

The Malaysian Employers Federation (MEF) had sought the same, noting the situation affects not only the manufacturing but also the construction, plantation and services sectors. Citing the plantation industry as an example, MEF said the sector reported a shortage of 40,000 workers and a RM10 billion loss in 2020 that is not recoverable.

Aside from containing the Covid-19 health crisis, the government’s other objective in reducing the reliance on foreign workers is to create more high-skilled jobs.

According to MEF, which cited data from the Employment Insurance System, there were about 1.38 million legal foreign workers in Malaysia as at the end of last November. Worryingly, the number of illegal foreign workers in the country is estimated to be more than triple the figure.

In its Economic and Monetary Review Report 2020 published last month, Bank Negara Malaysia said the prevalence of the low-cost production model and high dependence on low-skilled foreign workers discourage productivity enhancements, depress wages and encourage the creation of low-skilled jobs. “This is evidenced by the fact that industries which employ a higher share of low-skilled foreign workers tend to have lower productivity levels, relying on longer working hours to produce output. Furthermore, unchecked reliance on low-skilled foreign workers potentially introduces distortions to wage-setting mechanisms, leading to a suppression of local market wages.”

In the long run, Bank Negara cautions that a continued reliance on labour-intensive, low-cost business models runs the risk of decoupling wage gains from improvements in overall productivity and deterring the creation of high-skilled and high-paying jobs.

Khazanah Research Institute (KRI) research associate Jarud Romadan Khalidi says the belief that removing foreign workers or stopping the employment of foreign workers would fix issues such as unemployment among locals is presumptive and ignores the contribution of foreign workers to the economy.

“Removing foreign workers incurs significant spillover effects on the survival of firms. In 2019, foreign workers made up more than 30% of the workforce in the agriculture sector, and more than 20% in both the construction and manufacturing sectors. Almost half of the low-skilled workers in Malaysia were of foreign origin. For semi-skilled jobs, where the bulk of jobs are, more than one in 10 were foreign workers.

“The idea that without foreign workers, firms can easily hire locals to replace them misses an important fact — foreign and local workers are generally imperfect substitutes. Between 2010 and 2019, most of the foreign workers who entered the labour market had at most a secondary education.

“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 foreign workers tended to go into low-skilled jobs, whereas Malaysians were mostly hired in skilled and semi-skilled occupations,” he tells The Edge.

Adrian Pereira, an executive director at the North South Initiative (NSI), a social justice non-governmental organisation, stresses that the question is not if Malaysia should rely on foreign workers but how many we actually need to drive the economy, post Covid-19.

“It is an economic question of how serious we are about designing an economy which is competitive, robust and can adapt beyond Industry 4.0,” he observes.

Malaysian Institute of Economic Research (MIER) senior research fellow Dr Shankaran Nambiar says the Covid-19 situation has only sharply highlighted a long-standing problem that has been ignored all this while — a labour market reform, particularly over the use of migrant labour, is long overdue.

“There are two options. One, for the government to bite the bullet and use the pandemic as a window to introduce harsh policies on the use of migrant workers, and two, to persuade the private sector, using the pandemic as an illustration on why reform has to be undertaken,” he suggests.

Left to their own devices, companies will not choose more expensive processes when cheaper ones are easily available, Nambiar stresses.

“This might be a hard time to introduce a drastic policy because this is a time when the government would not want any outcome that results in a drop in the gross domestic product. For example, restaurants and food outlets are dependent on foreign labour and should be allowed to continue to be so; but manufacturers should be incentivised to move ahead with Industry 4.0, and now is a good time to drive home the need to do so.

“Unless there are clear policies that nudge companies one way or the other, those segments of industry which have a short-term perspective will not budge from their current production processes.”

Usually, “good times” are “bad times for reform”, but bad times are an “opportunity to undertake a serious reform”, urges Dr Muhammed Abdul Khalid, a research fellow with the Institute of Malaysian and International Studies (IKMAS) at The National University of Malaysia (UKM).

“It is time to fix things. The pandemic highlighted two issues that need to be solved, with the first being the heavy reliance on foreign workers. The percentage of low-skilled foreign workers has increased from 34% in 2010 to 46% in 2019.

“The notion that local workers do not want to work in low-skilled jobs, and therefore we need foreign workers, is simply not true. As of 2019, more than half (54%) of the low-skilled employed labour force were locals.”

He adds that the perception that locals are choosy about jobs is also not true. “Even graduates work in jobs that don’t require a degree. The share of graduate workers who are employed in semi-skilled occupations (sales and services worker/clerk) has increased from 22% in 2016 to 26% in 2019. And here they have to compete with foreign workers too. The percentage of foreign workers in semi-skilled jobs remained high at 14% (1.2 million workers) in 2019, although marginally lower than in 2010 (15%).”

While the migrants were doing the 3D (dirty, dangerous and difficult) work, policymakers should have ensured that Malaysians entered the high-skilled and high-value job markets, says NSI’s Pereira.

“If we did not have them, we should have created it. Instead, poor governance, corruption, human trafficking and forced labour have caused the various industries to become addicted to the labour exploitation of low-wage migrants. Singapore, knowing they lacked natural resources, land and even workers, made a painful transition in the 1980s while we remained the slave drivers of Asia.

“To find the right balance, the industry, experts and policymakers must be transparent and honest about redesigning the whole economy and the future of work. Every sector needs to be dissected and fixed,” he stresses.

Our treatment of foreign workers must also be improved, says IKMAS’s Muhammed.

“Currently, there is different treatment in terms of social protection and rights between foreign and local workers. We must not discriminate. Every worker regardless of country of origin must be protected and given the same rights.

“Social safety nets should be extended to all workers regardless of status. They must be treated with dignity. It is shameful that while the owners collected billions in dividend, the majority of their foreign workers live in cramped and unhygienic dorms,” he adds.

NSI’s Pereira says foreign workers’ hard work, perseverance and dedication naturally make them the preferred choice of industries. “But this is caused by artificial factors like abnormally low wages and poor governance, which allows migrants to work 12 to 16 hours a day. No Malaysian can compete with that job especially with a minimum wage and long working hours. The pandemic is the best time to rethink and fix the mistakes of the past.”

It should be noted, however, that the Ministry of Human Resources has rolled out initiatives to ensure fairer treatment of foreign workers, such as taking enforcement action against employers who do not comply with the Workers’ Minimum Standards of Housing and Amenities Act 1990 (Act 446) (Amendment) 2019, with 124 investigation papers already opened as reported last month.

Before being amended in 2019, Act 446 only covered the housing and accommodation of workers in the plantation sector, for plantations exceeding 20ha in size, as well as the mining sector. But it now covers all sectors, apart from incorporating new regulations on workers’ housing standards and amenities, according to a Bernama report.

KRI’s Jamrud warns that the road to economic transformation will come with its own set of labour and industrial challenges that will inevitably put the jobs of Malaysians at risk.

“Reducing Malaysia’s reliance on foreign workers could be an important policy lever to drive transformation, but it is the foundation of 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.

“This may involve, amongst others, strengthening public-private interactions to better inform industrial policies to create an enabling environment for innovation, developing active labour market policies to continually retrain the workforce, and reforming the education system to equip all Malaysians with relevant skills for the future,” he says.

It is therefore imperative that policymakers strike a delicate balance between labour reforms and the survival of businesses in Malaysia, especially in an economy that is recovering from the worst health crisis of our lifetime.

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