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Policy must avoid distorting labour market

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Palm oil harvesting at a Malaysian plantation. THE STAR (MALAYSIA)

Policy must avoid distorting labour market

The issue of foreign labour dependence is neither new nor unique to Malaysia.

When we launched the New Economic Model (NEM) in 2010, it was designed to stir the economy out of the middle-income trap and become a high-income economy.

And the NEM pointed out concerns on the dependency of foreign workers that risk slowing down the industrial transformation.

And again, the issue of foreign workers emerged in post-Covid-19 economic reform plans, which are to manage and reduce dependence on foreign workers, as they tend to take up jobs from locals.

As much as the government wants to reduce dependency on foreign labour, it is important to investigate the economic implications.

For instance, if one is operating a manufacturing or construction business, these tend to rely on foreign workers.

If I take manufacturing as an example, both export-oriented and domestic-oriented establishments tend to keep high utilisation rates of their plants. Thus, they need a regular flow of all types of workers (high, semi and low skilled, as well as foreign and domestic).

And we all know, many locals tend to shy away, especially in the areas that require lower levels of skills and are deemed as the 3D (dirty, dangerous and difficult) jobs. Such jobs tend to offer low remuneration, tough jobs and hard work conditions.

Over the past few years, the lack of foreign workers and the reluctance of locals to take up the jobs saw around 30 billion Malaysian ringgit ($4.5 billion) loss to the rubber industry.

Meanwhile, the palm oil industry was unable to generate an extra RM20bil revenue while the small and medium enterprises’ revenue was impacted, especially in areas like food and beverage (F&B) manufacturing, furniture as well as agricultural sectors.

In the service industry, there is a shortage of workers in retail F&B; and in small contractors for renovation, logistics and transportation.

Many local farmers and other economic sectors such as construction are finding it difficult to get workers now with a shortage of foreign labours.

We need to revisit foreign worker policy

The real challenge now is whether the government wants to immediately impose some strong policy measures to reduce the dependency on foreign workers.

This is challenging as there is a need to weigh on the immediate needs without harming the economic recovery by introducing measures to reduce the dependency on foreign workers over the medium and long term.

And again, on reducing the dependency on foreign workers over the medium to long term, the policies should not be a “one size fits all policy”.

For instance, if the policy today is all about asking businesses to automate immediately, this will seriously pose strong challenges to the companies as many are still bleeding after being battered by the Covid-19 pandemic.

And more importantly, one must recognise that not all industries are able to easily switch to “automation” or gain interest from local workers.

For example, if we look at our footwear industry, we are famous for strappy sandals. Can we automate the process? The answer is “very difficult” simply because it requires human skills and finishing.

And the real challenge is the locals are not keen to take up this job. So, those in this area of business will certainly resort to foreign workers.

There will be many industries like footwear where they cannot replace their operations through automation.

The need for foreign workers will remain vital for their business to continue operating by keeping high utilisation rates of their plants. Thus, they will require a regular flow of all types of workers (high, semi and low skilled as well as foreign and domestic).

On an immediate note, we need to bring in the foreign workers quickly. Further delay will certainly weigh on the economic recovery.

It will certainly hit hard on the already affected labour shortages in critical industries such as plantation, construction and manufacturing sectors.

With economic sectors resuming in late 2021, the transition to the endemic phase and the reopening of our international borders, most employers are concerned about ensuring an adequate supply of manpower so that industries can operate optimally.

Levels of dependence on foreign workers

Almost all Malaysians notice the size and level of foreign worker dependence in the economy.

Cost saving is one of the key factors that explains the tendency of firms to hire foreign workers, and past and current policies on hiring them have been less stringent.

There are more than two million registered foreign workers in the country, or about 15 per cent of the total employment in 2016 and 2020.

These exclude the unregistered illegal foreign workers. And more than 90 per cent of foreign workers occupied semi and low-skilled jobs.

The large concentration in these two areas may crowd out job opportunities for local workers because 61 per cent of the jobs created in our economy are semi and low-skilled and are distributed across all sectors, with services, agriculture and manufacturing being the top three.

We have a unique distribution of foreign workers compared to South Korea where the concentration is only in selected sectors, particularly manufacturing.

When the distribution of foreign workers is diverse, policies to reduce the dependence on them are challenging to implement and require sector-specific interventions.

While we are currently focusing on “reactive” policy measures in responding to periodic needs, we must now come out with a national well-designed labour policy with respect to the hiring and requirement of foreign workers.

In this process, there must be strong engagement between the government and industry players to address all the “blind spots” in our labour market ecosystem.

Our current labour market has created “disequilibrium” and acts as an impediment to steer the economy into a high-income nation without depending on foreign workers.

In designing the policies, the focus should not be overly stressed on a “one size fit all” policy on the plans to reduce foreign labours.

The policy should be more targeted at the respective industries based on the industry players’ commitment to reduce foreign workers.

In this manner, the burden to reduce foreign workers is on the industry players following the mutual understanding between the government and the respective players.

To conclude, any approach or model that proposes to reduce foreign worker dependence should not distort the market and cost of productivity and efficiency.

Efforts to reduce or maximise foreign workers’ potential will depend on the nature of production, and whether the foreign and local workers are substitutes or complements.

Anthony Dass is group chief economist and head of AmBank Research. He is a member of the Economic Action Council Secretariat and adjunct professor at Unitar Malaysia. The views expressed here are the writer’s own.

Anthony Dass

THE STAR (MALAYSIA)/ASIA NEWS NETWORK

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