International Migration and Labor Market Adjustments in Malaysia-The Role of Foriegn Labor Management Policies

International Migration and Labor
Market Adjustments in Malaysia:

The Role of Foreign Labor
Management Policies
Vijayakumari Kanapathy
Institute of Strategic and International Studies
There has been an increase in the global mobility of labor, and political and
social imperatives will continue to compel nations to impose restrictions on
international migration. The paper examines Malaysia's experience in regu-
lating the inflow of foreign workers to facilitate its labor market adjustment
process. The use of immigration policies to meet the competing objectives of
unfettered growth and industrial upgrading has recorded mixed success.
Immigration policies are necessary but insufficient. They must be comple-
mented and supplemented by labor market development strategies to foster
quality growth based upon "high path" structural transformation.
Introduction
Malaysia has long been an importer as well as an exporter of labor, but

international labor migration received national attention only since the
mid-1980s, when its reliance on the regional labor market for low-skilled
workers increased at an unprecedented rate. The first wave of migrant labor
inflow followed structural changes in the 1970s, while the second wave
coincided with sustained rapid growth since the late 1980s. As a sparsely
populated nation, Malaysia began to heavily depend on the regional labor
market to support its high growth. With uninterrupted high growth, the
migrant worker population grew unmanageably, warranting state inter-
vention to regulate their inflow.
In-migration, largely consisting of semi-skilled and unskilled workers,
has outweighed out-migration, and hence it has been the principal focus of
Asian and Pacific Migration Journal, Vol. 10, No. 3-4, 2001 429
Downloaded from amj.sagepub.com at Southern Illinois University Carbondale on March 5, 2015

430 ASIAN AND PACIFIC MIGRATION JOURNAL
foreign labor policies. Official policy allows controlled imports of foreign

workers as an interim solution to meet excess demand for low-skilled
workers, but it discourages continued reliance, and stresses the importance
of longer-term measures to foster industrial maturity (Ministry of Finance,
1995:39). Accordingly, immigration policies and related foreign labor poli-
cies have evolved to regulate the inflow of migrant workers to manage the
competing goals of growth and economic restructuring. Severe market
pressures following sustained high growth have, however, posed consider-
able challenges to foreign labor management policies. Despite several
measures to regulate unauthorized entry and employment of migrant
workers, the foreign labor population in Malaysia has risen significantly to
around 20 percent of the labor force, leading to a contentious debate on the
role of migrant workers in sustained growth and structural transformation.
There have been frequent policy shifts to accommodate demands from
employers to ease critical labor shortages, as well as to document and
legalize the large number of undocumented migrant workers in the coun-
try. Several analyses on foreign policy have diagnosed these policy shifts as
“stop-go”, inconsistent and lacking in clear policy directions to reduce the
reliance on foreign workers (Azizah, 1995 and 1996; Pillai, 1992 and 1995;
World Bank, 1995:79; Edwards, 1997). They contend that the policy swings
to “allow, restrict and ban” migrant workers contradict national objectives
to foster quality growth based upon “high path” structural transformation
to generate high-productivity high-skill employment. It has been specu-
lated that the relatively easy access to the large pool of low-skilled workers
tends to distort domestic factor prices and retard industrial upgrading and
trap the economy in low-skill equilibrium. Yet, there is little empirical
analysis on whether foreign labor competes (displaces) or complements
(augments) local labor.
The main objective of the paper is to examine the role of migrant
workers in the labor market adjustment process and the role (if any) of
foreign labor management policies in regulating the inflow of migrant
workers to balance the competing goals of growth and restructuring. The
paper begins with a brief introduction on the labor market adjustments
associated with structural and cyclical changes in the economy and the role
of foreign labor. Next, a survey of recent foreign labor management policies
is carried out to assess their effectiveness in regulating the inflow of migrant
workers, before examining how these policies have complemented other
labor market development strategies to constitute a coherent and integrated
national strategy to reduce the reliance on foreign workers. The paper
concludes with the main findings and draws some policy lessons based on
Malaysia’s experience on the management of foreign labor.

FOREIGN LABOR MANAGEMENT POLICIES IN MALAYSIA 431
TABLE 1
OUTPUT BY MAJOR ECONOMIC SECTOR, 1970-2000 (PERCENTAGE SHARE)
1970 1980 1990 2000a Average annual growth (%)
Sector 1970-80 1980-90 1990-2000
Agriculture 30.0 23.5 16.2 8.4 5.0 3.8 0.5

Mining and
Quarrying 14.2 10.4 9.3 6.5 4.2 5.6 3.5
Manufacturing 14.4 20.2 24.4 31.2 11.3 9.3 10.0
Construction 3.9 4.8 3.5 3.3 9.8 3.2 6.6
Services 37.4 41.2 46.5 50.7 8.6 6.4 8.3
Non-government
services 27.8 30.6 37.8 43.9 8.6 6.6 9.0
Government
services 9.6 10.6 8.7 6.8 8.6 6.6 4.7
SOURCES: Ministry of Finance, 1998, Economic Report, 1997/1998; Malaysia, 2001, The
Second Outline Prospective Plan, 1991-2000.
Structural Changes and Foreign Worker Particiation in the

Labor Market
The first wave of migrant worker inflow into the country in recent history
began in the 1970s and gained momentum in the early 1980s when the rural
plantation sector lost many of its workers to the rapidly expanding manu-
facturing and services sectors. The manufacturing sector expanded at
around 11 percent per annum between 1970 and 1980, increasing its GDP
share by about 6 percent and employment share by 7 percent. Meanwhile,
services employment expanded by 5 percent annually over this duration
(Tables 1 and 2). These urban jobs offered better wages and working
conditions, more in line with the higher wage expectations of the increas-
ingly educated labor force.
The growing labor market imbalances, initially in rural agriculture and
latter in the construction sector, were filled in by unskilled labor, mainly
from Indonesia and the Philippines. Their entry and employment was
predominantly unauthorized. Despite their illegal status, they attracted
little national or policy attention since they were small in number, restricted
to the rural areas and were viewed as temporary migrants.
Despite the widespread labor shortage in the rural areas, the high
reservation wage of domestic labor contributed to relatively high levels of
structural unemployment in the late 1970s and early 1980s. The level of
unemployment during this period hovered between 5 to 7 percent, while the
plantation sector reported difficulties in recruiting domestic labor (Table 3).
Meanwhile, the import of foreign workers continued to increase gradually

TABLE 2
432
EMPLOYMENT BY MAJOR ECONOMIC SECTORS, 1970-2000 (Percentage Share)

New jobs
created
Average annual growth (%) between
1985 and 1997
Sector 1970 1980 1990 2000 a 1970-80 1980-90 1990-2000 ('000)
Agriculture 53.5 39.7 26 15.5 0.7 -0.9 -2.3 -485

Mining and Quarrying 2.6 1.7 0.6 0.5 -0.9 -7.4 1.0 -18.8
Manufacturing 8.7 15.7 19.9 27.5 10.0 5.8 6.3 1,546.5
Construction 2.7 5.6 6.3 9.3 11.5 4.6 6.9 497.4
Services 32.5 37.4 47.2 47.3 5.2 5.8 3.0 1,808.8
Non-government services 20.4 23.7 34.5 37.6 5.3 7.3 3.8 1,755.30
Government services 12.1 13.7 12.7 9.7 1.9 12.5 0.2 53.5
Total 3,339.50 4,816.90 6,686 8,929 3.7 3.3 2.9 3,348.9
SOURCES: Ministry of Finance, 2000, Economic Report, 2000-2001; Malaysia, 1976, Third Malaysia Plan, 1976-1980; Malaysia, 1981, Fourth Malaysia
Plan, 1981-1985; Malaysia, 1996, Seventh Malaysia Plan, 1996-2000.
NOTE: a-preliminary figure

ASIAN AND PACIFIC MIGRATION JOURNAL
TABLE 3
KEY ECONOMIC INDICATORS, 1975-2000
GDP Growth Labor Force Total Employed Unemployment Inflation

Year (%) (‘000) (‘000) (%) (%)
1975 0.8 4,230 4,025 6.9 4.5

1976 11.6 4,662 4,377 6.1 2.6
1977 7.5 4,765 4,476 6.1 4.8
1978 6.6 5,056 4,759 5.4 4.9
1879 9.2 5,216 4,925 5.2 3.6
1980 7.8 5,380 4,817 5.6 6.7
1981 6.9 5,020 5,029 5.0 9.7
1982 5.9 5,140 5,143 5.7 5.8
1983 6.3 5,250 5,250 5.2 3.7
1984 7.8 5,380 5,382 5.8 3.9
1985 -1.1 6,039 5,625 6.9 0.3
1986 1.2 6,222 5,707 8.8 0.7
1987 5.4 6,457 5,881 7.3 0.3
1988 8.9 6,658 6,088 6.3 2.5
1989 8.8 6,850 6,390 5.1 2.8
1990 9.8 7,042 6,829 5.1 3.1
1991 8.6 7,204 7,041 4.3 4.4
1992 7.8 7,370 7,250 3.7 4.7
1993 8.3 7,627 7,498 3.0 3.6
1994 9.3 7,834 7,618 2.9 3.7
1995 9.4 8,257 7,999 2.8 3.4
1996 8.6 8,641 8,427 2.6 3.5
1997 7.5 9,038 8,817 2.4 2.7
1998 -7.5 8,881 8,597 3.2 5.3
1999 p
5.4 9,010 8,740 3.0 2.8
2000 f
5.8 - - 2.9 3.2
Growth (%)
1986-1990 3.1 4.6
1990-1997 3.6 3.7
SOURCES: Ministry of Finance, Economic Report, various issues; Bank Negara Malaysia,
Annual Report, various issues.
NOTES: p – preliminary; f – forecast

during this period. The number of work permits issued by the Immigration
Department rose from 3,484 in 1985 to 24,152 by 1990 (Table 5). These
figures however do not include the undocumented or illegal workers. In
1984, it was estimated that there were about 500,000 illegal immigrants in
the country (Ministry of Labor, n.d.:15). The initial attempts to authorize
and document the entry of foreign workers were weak and limited as
reflected by the large numbers of undocumented migrant workers.
The second wave of migrant worker inflow coincided with the uninter-
rupted high growth following the liberalization of the economy in the
second half of the 1980s. The Malaysian government introduced a series of
measures to further liberalize the economy through deregulation of invest-
ment and privatization of state-owned enterprises. The liberalization of the
Malaysian economy coincided with structural adjustments in Japan and
other East Asian newly industrializing economies. Currency appreciation
and tight labor market in these economies forced firms to relocate to areas
with lower costs of production. Malaysia with its increased liberal posture
towards foreign investment thus became an attractive location as an off-
shore production base for the East Asian economies. The resurgence of
foreign investment, mainly from East Asia, and the positive response of
domestic investment to the policy reversals contributed to robust growth
and rapid industrialization since 1987. Rapid growth was also sustained by
unprecedented increase in investment in physical infrastructure.
Sustained growth at over 8 percent per annum since 1988 had trans-
formed the economy from a situation of high unemployment in the mid-
1980s to full employment by the early 1990s, with widespread labor and
skill shortages and escalating wages. Though the labor force expanded at 3.1
percent per annum between 1986 and 1990, it was not able to keep pace with
the rate of job creation at 4.6 percent during this period. Thus unemploy-
ment fell from a peak of 8.8 percent in 1986 to 5.1 percent by 1990, and to 2.4
percent by 1997 (Table 3). The ever-widening imbalances in the labor
market were met through a rapid rise in the import of migrant workers.
With unabated growth, inflation rose from less than one percent in 1986 to
around 3 percent by 1990, but with increasing inflow of migrant workers
high growth was sustained at relatively moderate levels of inflation, rang-
ing from between 3 percent to 5 percent.
With economy-wide labor shortages, foreign worker employment had
spread from rural agriculture to construction and selected services (mainly
as domestic maids) by the late 1980s. But by the beginning of the 1990s, the
manufacturing sector, which emerged as the primary engine of growth, had
also begun to recruit unskilled and semi-skilled migrant labor. About 46
percent of the 3.3 million jobs created between 1985 and 1997 was in
manufacturing, while the non-government services sector accounted for

about 52 percent of the new jobs On the contrary, employment in agriculture

fell. Following these structural changes, migrant workers who initially
eased labor shortages in agriculture now supported the robust growth of the
manufacturing and services industries. By 1999, about 38 percent of the
documented migrant workers were employed in manufacturing compared
to only 9 percent in 1992/93 (Table 6). Similarly, employment of foreigners
in the services sector has risen from around 1 percent to 9 percent, despite
the fact that migrants are restricted to very few occupations.
The strong push and pull factors and restrictions on cross-border labor
mobility has led to a proliferation of undocumented migrant workers in all
sectors, warranting more effective policies to stem unauthorized entry. The
robust growth also exposed the inherent structural weaknesses of the
economy. Studies have revealed that the largely input-driven growth was
supported by an increasing reliance on unskilled foreign labor, while
employment growth was skewed towards low-skill jobs (World Bank, 1995;
ISIS, 1995). The robust growth and rising global competition for trade and
investment also instilled greater awareness and confidence at the national
level to debate the role of migrant workers in the economy. A regularization
program was carried out throughout the Peninsula in 1992 to weed out
undocumented workers. The following year a freeze was imposed on the
entry of new migrants. The Seventh Malaysia Plan (1996-2000) and the
Second Industrial Master Plan (1996-2005) focused on the need for a
strategic shift from a largely input-driven to a productivity-based growth
for sustainable development. National attention thus diverted to industrial
upgrading and policies and programs to step up the demand and supply of
skilled labor were prioritized.
Despite the policy shifts to control the migrant worker population, there
was an unabated increase in the inflow of migrant workers. With the
economy at full employment by the early 1990s, the import of foreign labor
was tempting to ease excess labor demand and moderate wage inflation.
The official ban on the entry of new migrant workers has been occasionally
lifted to ease labor shortage in “critical” industries (export-related or those
that can stimulate growth). Malaysia’s growing dependence on foreign
labor was only interrupted by the financial crisis in 1997, followed by the
steep recession in 1998. The economy contracted by 7.5 percent in 1998, and
the government announced a policy of total ban on the intake of migrant
workers and an employment policy of first preference for local workers. The
retrenchment and repatriation of foreign workers resulted in a decline in
total labor supply by 1.7 percent. Based on documented workers, the
number of migrant workers fell by about 35 percent from 1.2 million in 1997
to 0.78 million in 1998 (Bank Negara Malaysia, 1999:77). Three-quarters of
the migrant workers were engaged in construction, agriculture and manu-

facturing and these three sectors accounted for about 97 percent of the job loss
in the economy. Thus, given the temporary nature of their employment status,
it is most likely that migrant workers bore the brunt of the job loss in the
economy, contributing to a relatively stable level of unemployment of about
3 percent in 1998.
Malaysia has thus relied heavily on the surplus labor in the region to
facilitate its labor market adjustment process. It has allowed temporary
intake of migrant workers to feed excess labor demand in sectors affected
by rapid structural transformation to maintain their labor cost competitive-
ness. Foreign labor has also served as a buffer to soften the impact of
business cycles by fueling growth and moderating wage inflation during
periods of high growth and maintaining relatively low levels of unemploy-
ment during economic downturns by shedding excess foreign labor. While
market factors have played an important role in the influx of migrant
workers, the state has intervened to regulate their inflow into the country.
Malaysia’s experience with managing migrant worker inflow is discussed
below.
Management of Foreign Labor
The inflow of migrant workers in Malaysia is governed by immigration

policies and related foreign worker employment policies to facilitate labor
market adjustments. These foreign labor management policies are also
complemented by other labor market development strategies to reduce the
reliance on foreign workers. As highlighted earlier, the national objective
vis-à-vis foreign labor management is to allow migrant workers as interim
solution to ease labor shortages in the critical sectors and to discourage long-
term reliance. Foreign workers policies have evolved accordingly with the
rising tide of migrant worker inflow as traced in Appendix 1. The principal
mechanisms that have been used to regulate the inflow of migrant workers
include bilateral agreements with major sending countries, work permits and
foreign worker levy. They have been designed to satisfy the competing
objectives of growth and restructuring by targeting the price, quantity and
quality/skills of migrant workers.
The earliest of the mechanisms deployed was the bilateral agreements,
the first of which was the Medan Agreement signed with Indonesia in 1984.
Under this agreement, Indonesia was to supply six specific categories of
workers whenever requested by Malaysia (Ministry of Labor, n.d.:14).
Similar agreements were later signed with other labor exporting nations
such as the Philippines, Thailand and Bangladesh. The bilateral agreements
identified the skills required and the sectors in which the migrant workers
were to be employed. By selecting countries with which it signed bilateral

agreements, it also determined the nationality of the migrant workers. Due to

socio-political considerations, Malaysia has only allowed the recruitment of
migrant workers from a few selected countries. Only a limited number of
migrant workers were imported via the bilateral agreements, and with
excess demand for unskilled workers, these bilateral agreements generally
failed to stem the inflow of illegal workers.
The major instrument used to regulate the inflow of migrant workers is
the work permit. Unlike some developed economies, Malaysia does not
have an official policy to offer residential status to migrant workers. Hence,
it uses work permits to allow foreigners to stay and work temporarily to
meet its labor market needs. Work permits are issued to all foreign workers
to authorize their entry and employment. By varying the terms and condi-
tions attached to the work permits, immigration policies are used to target
labor and skill needs.
There are basically two types of work permits used to target skill needs.
The unskilled and semi-skilled workers are classified as those earning
below RM2,000 and they are issued with visit passes for temporary employ-
ment. In Malaysia, this group of workers is generally termed as “migrant
workers.” Those earning RM2,000 and above are classified as technical and
professional workers and they are issued with employment passes if their
employment contracts are at least two years. This latter group is popularly
termed as “expatriates.” The expatriates on short-term contracts (less than
a year) are issued visit passes for professional employment.
Traditionally, the issue of work permits for expatriates has been rela-
tively liberal in line with the relatively open policy towards foreign invest-
ment when compared to migrant workers. The explicit bias in the immigra-
tion policy has been further reinforced in recent years to foster skill-
intensive high-productivity growth. While a freeze on the intake of migrant
workers for all sectors and from all countries was announced on August
1997, the government further relaxed conditions governing the employ-
ment of expatriates. For instance, it opened a special counter at the Immigra-
tion Department headquarters in January 1997 to speed up applications by
expatriates to a minimum of two weeks.1 In addition, expatriates will have
a one-year endorsement on their passports instead of having to renew the
approval on a short-term basis (Ministry of Finance, 1998:165).
Work permits for expatriates are issued for almost all sectors and all
occupations, except those that affect national security. They can obtain work
permits either as employees or as investors. On the other hand, work
1
Undue delays in approving work permits have been one of the major complaints among
foreign investors.

permits for migrant workers are governed by stringent regulations in order to

protect the rights of its citizens to employment and to ensure that employers
do not substitute local labor with cheaper foreign workers. Migrant workers
are restricted to selected occupations in targeted sectors. Recruitment can only
be made by employers or by accredited recruitment agencies after providing
credible evidence of difficulty in recruiting local labor.
The duration of employment of migrant workers and expatriates also
differ. To discourage permanent settlement and to impress upon employers
the temporary nature of unskilled labor imports, work permits are issued
for restricted duration. Migrant workers are granted work permits valid for
a year, and they can be renewed annually for a maximum of three years.
Subsequently, the maximum period was extended to seven years, depend-
ing on sectoral needs. With the current economic slowdown, it has been
reduced to three years. On the other hand, expatriates can hold similar
positions for a maximum of 10 years, on condition that Malaysians are
trained to take over. For non-executive positions which require technical
skills and experience, expatriates may be employed up to 5 years, again on
the condition that Malaysians are trained to take over. Migrant workers and
expatriates on a short-term basis are not allowed to bring in their depen-
dents, whereas expatriates with employment passes are allowed to bring in
their dependents. Further, migrant workers must be between 18 and 45
years of age, whereas age limits are not imposed on expatriates. The
nationality of migrant workers is also restricted. Only those from Indonesia,
Thailand, Philippines, Bangladesh, Pakistan and more recently India are
allowed to work in Malaysia. Such limitations for expatriates are rare.
The manufacturing sector is also automatically allowed five expatriate
posts for new investments with paid-up capital of US$2 million and above
and one key post if the paid-up capital is RM500,000. However, industries
established within the Multimedia Super Corridor (MSC), launched in 1996,
are allowed unlimited intake of expatriates. MSC also operates a one-stop
processing center to facilitate the issue of work permits.
Hence, immigration policy attaches conditions such as duration of
employment, age, nationality, skills, employment sector and sometimes
even gender to work permits to ease the entry of those with professional and
technical skills and to discourage the inflow of migrant workers. The main
objective is to foster the development of skill-intensive industries and to
gradually phase out labor-intensive industries.
One other instrument of foreign labor management is the foreign
worker levy. The 1991/1992 budget imposed an annual levy on the employ-
ment of foreign workers, including the expatriates. The annual levy varied
by sector and by skills. The main aim of the levy is to raise the cost of hiring
and discourage the use of foreign workers. The annual levy ranges from

RM300 for the plantation sector to as high as RM900 for semi-skilled workers
in the services sector. For skilled workers, the annual levy was as high as
RM2,400. Critics have pointed out that the variable levy imposed in Malaysia
contradicts the national policy to encourage skill-intensive industries by
imposing higher levies on skilled workers.2 It appears that the general policy
has been to impose a lower levy on sectors perceived to face critical labor
shortages, while a higher levy has been imposed on sectors where the problem
of excess labor demand has been perceived to be less serious. In other words,
the aim was to ensure that foreigners augment local labor supply and do not
compete for the same jobs. This is contrary to the practice in Singapore, which
faces a different labor market, where the higher the skill, the lower the levy.
The 1991 Policy on the Recruitment of Foreign Workers had introduced
specific terms and conditions on the employment of migrant workers which
had the effect of raising the cost of hiring migrant workers. This was the first
comprehensive policy that detailed the terms and conditions of employ-
ment of migrant workers, including the responsibilities of the employers on
the housing and health of migrant workers. The employer has to sign a
contract of employment with the worker and also bear the cost of recruit-
ment and repatriation. The policy also states that foreign workers were to
be accorded similar wages and benefits and terms and conditions of services
as provided for in the labor legislation. In other words, employers should
not discriminate between local and foreign labor to ensure that they do not
replace local labor with cheaper foreign labor. The employers had to
contribute to the Social Security Scheme and foreign employees were given
an option to participate in the Employment Provident Fund. In addition,
employers are also required to provide accommodation for their foreign
workers. It is also mandatory for employers to ensure that foreign workers
hired by them remain employed with them, and they are periodically sent
for medical examination to check against contagious diseases. In practice,
the larger establishments adhere to such rules and regulations while the
smaller establishments, especially in the informal economy, tend to flout
such regulations.
To reinforce the implementation of the regulations governing the
recruitment and employment of migrant workers, the government raised
the penalty and stepped up surveillance on unauthorized entry and em-
ployment of migrant workers. Existing laws were amended to increase the
burden of responsibility on employers for hiring illegal foreign workers and
imposed harsher penalties for illegal entry. The Employment Restriction Act
2
Though the absolute value of the levy on skilled workers is higher than that of unskilled
workers, in terms of its ratio to the total wage bill, it is lower for skilled workers.

(1968) was amended to increase the fine from RM5,000 to a maximum of

RM10,000 and imprisonment from one to five years on conviction for hiring
foreign workers without permits. With these measures, the number of irregu-
lar workers in the Peninsula has declined.
The state has also launched nationwide registration and regularization
programs to weed out the irregular workers. These exercises offered irregu-
lar workers an opportunity to legalize their entry and employment. Four
registration and two major regularization exercises were carried out in the
Peninsula in 1992 and in 1996. About 300,000 migrant workers had regis-
tered during the first exercise, while another 423,180 in the second exercise.
Sabah had launched two such exercises in 1997 and in 1998. In the 1997
registration exercise, about 250,000 undocumented workers had regis-
tered. Sarawak had also launched a similar program in 1998.
Several administrative changes were also introduced to coordinate and
improve implementation of the recruitment policies for foreign workers. A
one-stop agency, the Task Force on Foreign Workers, was established in
1994 to coordinate policy implementation. The following year, new guide-
lines on the recruitment of migrant workers were issued, and to stem
exploitation by agents, the Task Force took over the recruitment of all
migrant workers, with the exception of domestic helpers and shop assis-
tants. When the Task Force proved ineffective, it was disbanded and its
functions were taken over by the Foreign Workers Division formed within
the Immigration Department. Hence, through a process of trial and error
and through consultations with industry representatives, the recruitment
process of migrant workers has been improved considerably over the years.
Despite these measures, the robust growth has contributed to a high
incidence of unauthorized entry and employment. Since 1993, several
attempts to ban the import of migrant workers were made to further reinforce
the regulations. But the policy ban had to be relaxed occasionally following
requests from employers whose production schedules were affected due to
difficulties in hiring local labor. The first freeze was announced in April
1993, but following appeals from employers, the ban was lifted for skilled
and semi-skilled migrant workers in June that year. The ban was re-
imposed for all sectors in January 1994. According to official sources, the
1993 freeze was still applicable, but individual employers could appeal
against the ruling. Applications were approved on a case-by-case basis and
employers have been encouraged to recruit from the detention camps
where apprehended illegal workers are detained until departure. However,
when the financial crisis hit Malaysia in 1997, a total ban was re-imposed in
August 1997. Work permits were not renewed and those affected could
either choose to be re-deployed to the agricultural sector or opt to return
home. This total ban was however lifted for the import of domestic helpers

in September 1997, and later for those employed in island resorts. For other
jobs, the ban was in force until October 1998. With economic recovery in
1999, migrant workers were once again allowed on a case-by-case basis to
support recovery and sustain growth.
The numerous shifts in migrant worker policy, vacillating from “free-
ing, restricting and banning” the inflow of migrant workers is said to be
inconsistent and lack clear policy directions. This lack of predictability is
said to have stifled industry incentives to carry out long-term planning and
have called for industry and firm-level targets and deadlines on the use of
migrant labor (Pillai, 1997). The implementation of such detailed industry
and firm-level targets and deadlines, however, require elaborate adminis-
trative arrangements, backed by an efficient legal framework, to monitor
and enforce the targets. Apart from the administrative difficulties, firm-
level targets may not be optimal.
However, if one views the migrant worker policy as a tool of labor
market policies, then behind the policy shifts lie a flexible foreign worker
policy to manage the competing objectives of growth and restructuring. The
foreign labor management policies have allowed the controlled intake of
migrant workers for critical industries to facilitate growth, which has
remained a policy priority. Malaysia could have reduced its reliance on
foreign workers by targeting a lower growth rate. But it didn’t. Instead,
Vision 2020 announced by the Prime Minister in 1991 targets an annual
average growth of 7 percent per annum to achieve developed nation status
(CERS, 1991). The foreign labor management policies also discourage the
long-term reliance on foreign workers by controlling their numbers, quality
as well as the costs of hiring them as has been discussed earlier. Over the
years, the cost of hiring migrant workers has risen significantly due to the
annual levy, processing and visa fee, the security bond, mandatory social
security payments, contribution to pension funds and the housing and
medical requirements. The bulk of the costs are to be borne by the employer,
but in practice, some of the smaller establishments tend to pass on the costs
to the workers. In any case, the cost of employment rises.
Policies to control and manage the inflow of migrant workers have met
with considerable challenges in the face of structural imbalances and robust
growth. Policy mechanisms and instruments to regulate the inflow of
migrant workers have had less than the desired effects in the face of severe
market pressures as evidenced by the high incidence of undocumented
migrant workers. Despite the emergence of a coherent set of rules and
regulations governing the recruitment and employment of migrant work-
ers, its enforcement has been hampered by inadequate institutional capac-
ity. There have also been allegations of malpractices in law enforcement.
Others have highlighted the importance of geographical, historical and

cultural factors that tend to enhance Malaysia’s propensity to absorb mi-

grants, the role of social networks and the immigration ‘industry’ in the inflow
of illegal workers (Pillai, 1998). These factors have been compounded by
stringent conditions attached to work permits that restrict the geographical
and occupational mobility of the migrant worker. Unauthorized entry and
employment allows migrant workers to avoid the high costs of entry and
employment as well as give them the freedom to choose the job, employer and
location.
Labor Market Development Strategies
The role of foreign labor management policies must necessarily be viewed

together with other labor market development strategies in the manage-
ment of foreign labor. The foreign labor management policies in Malaysia
have been reinforced with labor market policies and strategies to increase
the supply of local labor and skills as well as increase the demand for skilled
labor. These are briefly discussed below.
To enhance the participation of the local labor force, especially for
females, legislative and non-legislative measures were introduced in the
mid-1990s. The female labor force participation rate in Malaysia is around
47 percent, which is considered rather low compared to the OECD countries
where it is around 62 percent. The 1955 Employment Act was thus amended
to provide statutory benefits to part-time workers3. This was aimed at
encouraging housewives and retirees to re-enter the labor market, at least
on a part-time basis. The government has also allowed the intake of migrant
workers as domestic helpers to discourage qualified housewives from
leaving the workforce.
To increase the supply of skilled workers, the government had intro-
duced the Returning Scientists Program in the early 1990s to attract talented
Malaysians residing overseas. Between 1995 and 1998, about 93 overseas-
based foreign and Malaysian scientists were recruited under this program
to work in local institutions on short-term contracts. The program had
limited success since their relatively high salaries posed a financial burden
and contributed to internal wage inequities. In the 2000/2001 annual
budget, further incentives have been offered to encourage Malaysian ex-
perts to return. These include income tax exemption on income remitted
within two years from the date of arrival, import duty and sales tax exemption
on two cars registered in the country of origin for at least six months and
3
Previously, the law was silent on the payment of statutory benefits to part-time workers,
and hence employers rarely paid statutory benefits to part-time workers.

permanent resident status within six months to the immediate family mem-
bers.
In the 1990s, education and training was prioritized to boost the supply
of trained manpower. Basically, there was a fundamental shift from a
largely supply-driven approach to a more demand-driven approach to
human resource development. Elements of this policy shift include manda-
tory training by industry, liberalization of the education and training
market, incentives for private sector investment in education and training
and the forging of industry-institution links. State investment in education
and training was also increased considerably. With these far reaching
reforms, a very comprehensive and dynamic education and training infra-
structure has been developed offering more opportunities for workers and
industry to further develop their skills.
These efforts to increase the supply of quality manpower have been
complemented with efforts to increase the demand for skilled manpower.
In general, investment incentives and industry promotion are biased to-
wards high value added skill-intensive industries. For instance, the wide
range of investment incentives offered under the Investment Incentives Act,
1986 and the Income Tax Act, 1967 such as pioneer status or investment tax
allowance, the double deduction for export promotion are selectively given
to industries that engaged in skill-intensive high value added activities or
products.
New sources of high value-added growth are also fostered through, for
instance, the creation of the Multimedia Super Corridor. This high-technol-
ogy park, launched in 1996, aims to attract information and communica-
tions technology-based industries through the provision of special incen-
tives, such as unrestricted employment of skilled foreign workers, subsi-
dized physical and information infrastructure, generous financial and fiscal
incentives and unrestricted ownership. A one-stop center was set up for the
speedy process of work passes for skilled foreign workers and other legal
and administrative matters.
The following two sections examine the labor market outcomes of
migrant workers to examine the strengths and weaknesses of the foreign
labor management policies.
Magnitude of Foreign Workers in Malaysia
As explained earlier, the foreign worker population in Malaysia is distin-

guished between expatriates or the professional and technical workers and
the migrant workers or the semi-skilled and unskilled.

TABLE 4
NUMBER OF “EXPATRIATES” IN MALAYSIA
Number of Employment Passes and
Year Visit Passes for Professionals Issued
1981 8,142
1982 13,935
1983 26,169
1985 16,463
1986 12,365
1987 12,000
1988 -
1989 -
1990 61,300
1993 -
1994 -
1995 -
1997 -
1998 45,726
1999 16,173
SOURCES:Immigration Department (unpublished); Ministry of Finance, 1998, Economic

Report,1997-98.
The Import of Professional and Technical Workers/“Expatriates”
The number of expatriates in the country is relatively insignificant, compared

to migrant workers, but it has increased gradually with the inflow of foreign
investment. There were 8,142 work passes issued in 1981, but this has risen
gradually, reaching a peak of about 61,300 or 6 percent of the workforce in
1993. However, following the 1997 financial crisis, the number of expatriates
had fallen to 45,726 in 1998 and to 16,173 in 1999 (Table 4).
The Import of Migrant Workers/Semi-skilled and Unskilled Workers
While it is commonly acknowledged that Malaysia is a large net importer

of migrant workers, estimating the stock and flows of unskilled labor is
fraught with difficulties. The early labor inflows of the mid-1970s involved
mainly unauthorized entry of mostly Indonesians who took on jobs in rural
plantation and construction sectors in the Peninsula and Filipinos into
Sabah. Despite repeated efforts at documenting all illegal entry, there is still
a very high incidence of unauthorized entry, overstaying and possession of
forged documents. Estimating the presence of unskilled foreign workers is
further complicated by the transitory movement of labor along the long and

TABLE 5
ESTIMATES OF MIGRANT WORKERS*
(SEMI-SKILLED AND UNSKILLED WORKERS) IN MALAYSIA
Number of Visit Official Estimates of

Passes Issues Migrant Workers
Year (Peninsula) (Malaysia) Source
1984 500,000 Ministry of Human Resources, nd:15

1985 3,484 -
1986 5,529 -
1987 7,697 -
1988 5,972 -
1989 8,738 -
1990 24,152 287,000 Seventh Malaysia Plan,1996:110
1991 - -
1992 - -
1993 - 1 million Midterm Review of the
6th Malaysia Plan:37
1994 101,647 -
1995 60,458 649,000 Seventh Malaysia Plan,1996:110
1996* 84,935 -
1997 - 1.7 million
1998 606,291 0.78 million }Bank Negara Malaysia,
1999 409,660 0.70 million }2000:73
2001 (Nov) 789,120 1,109,820 The Sun, 28 Nov., 2001
SOURCE: Immigration Department (for number of visit passes issued in the Peninsula).
NOTE: * Figure refers to permits issued from January 1996 to January 1997.
porous Malaysian border. Nonetheless, with a more coherent policy on

foreign workers and with increased surveillance and enforcement, there have
been substantial improvements in documenting and thwarting illegal entry
compared to a decade ago. Official estimates of undocumented foreign
workers stood at around one million in the mid-1990s, but had declined to
around 600,000 million, of whom 450,000 were in the Peninsula (The Sun, 22
August 2001). While these figures may not be very accurate, they nonetheless
indicate that a more coherent policy and legal framework and enhanced
institutional capacity has had some positive effects in managing the problem
of illegal entry. The much speculated influx of economic refugees from
Indonesia in the aftermath of the financial crisis did not materialize. On the
contrary, the economic downturn combined with stringent policies and
stepped up enforcement has resulted in a perceptible decline in undocu-
mented workers.
Table 5 provides estimates of migrant workers based on the number of
work permits issued by the Immigration Department (for the Peninsula

only) as well as official data released occasionally. The earliest official

estimate indicated that there were some 500,000 irregular immigrants in the
country in 1984, including Filipinos in Sabah and Indonesians in Sabah,
Sarawak and the Peninsula (Ministry of Labor, n.d.:15). In 1997, official
figures estimate that at least 1.7 million migrant workers were employed in the
country, including one million of whom were undocumented (Ministry of
Finance, 1997:25). Based on this estimate, foreign workers accounted for about
20 percent of the total labor force or 21 percent of all those employed. However,
the total ban on the inflow of migrant workers in 1997 and the recession in 1998
have reduced the number of migrant workers in the country. The number of
work permits issued by the Immigration Department has fallen from 606,291
in 1998 to 409,660 in 1999 for the Peninsula. For the whole of Malaysia, the
total number of migrant workers has also dropped from 0.78 million in 1998
to 0.7 million in 1999. However as the economy picked up again led by the
robust growth of manufacturing, demand for foreign labor rose. As of Novem-
ber 2001, a total of 789,120 workers permits had been issued to migrant
workers in the Peninsula and another 320,700 for Sabah and Sarawak.
The employment of foreign labor in Sabah and Sarawak differs greatly
from that of the Peninsula. In Sabah, foreign labor accounts for about 50
percent of the work force. They are mostly political refugees who had
migrated in the 1970s and economic migrants in later years. Due to vast
differences in the economic structure and the nature and incidence of
migrant worker participation in the economy, the role of migrant workers
in these two economies have to be dealt with separately. Incidentally, much
of the discussion in the paper is relevant for the Peninsula.
With rapid growth and structural transformation of the economy, the
sectoral employment of foreign workers has also changed significantly. The
majority (38.1 percent) of the migrant workers in the Peninsula were
employed in the manufacturing sector by 1998 compared to around 9
percent in 1992/93. The plantation sector now absorbs around 18 percent
compared to around 38 percent in 1992/93. Similarly, the share of foreign
workers in construction fell from around 34 percent to 12 percent. On the
other hand, the services sector (excluding domestic helpers) employed 9
percent in 1998 compared to a mere 1 percent in 1992/93 (Table 6). Clearly,
the employment of foreigners in the plantation sector has dwindled with the
structural transformation of the economy.
Neighboring Indonesia has the largest reserve of excess labor and hence
Indonesians constituted the bulk of the foreign worker population, account-
ing for about 68 percent, with the next largest group from Bangladesh (27
percent). The remaining 7 percent came almost entirely from countries in
Southeast and South Asia (Table 6).

TABLE 6
TEMPORARY WORK PASSES ISSUED TO UNSKILLED FOREIGN WORKERS
BY SECTOR AND COUNTRY OF ORIGIN, JANUARY TO DECEMBER 1999 AND
BY SECTOR, JULY 1992 TO DECEMBER 1993
Domestic Cons- Manu-

helpers truction facturing Services Plantation Others Total
Bangladesh 2 16,615 76,779 11,439 5,953 - 110,788

(27.0)
Kemboja 162 - 1 - - - 163
(0.04)
India 20 2,016 1,369 9,603 95 - 13,103
(3.2)
Indonesia 86,661 28,423 73,413 12,746 67,951 - 269,194
(65.7)
Myanmar 11 563 1,946 1,176 2 - 3,698
(0.9)
Nepal - - 28 203 97 - 328
(0.1)
Pakistan - 1,115 841 617 32 - 2,605
(0.6)
Philippines 6,678 15 72 534 - - 7,299
(1.8)
Sri Lanka 54 - 153 - 145 - 352
(0.1)
Thailand 604 333 675 292 226 - 2,130
(0.5)
Total 94,192 49,080 155,277 36,610 74,501 - 409,660
(1999) (23.0) (12.0) (37.9) (8.9) (18.2) (100.0)
Total 45,317 90,431 23,131 3,759 99,053 1,218 262,909

(Jul 92-Dec 93) (17.2) (34.4) (8.8) (1.4) (37.7) (0.5) (100.0)
SOURCES: Immigration Department, unpublished data, for reference year 1999, and
Azizah, 1997, Table 2, for reference period 1992/1993.
NOTE: Figures in brackets denote percentage share.
The Consequences of Migrant Worker Participation in the

Malaysian Labor Market
Despite the enormous literature on migrant workers in Malaysia, little work

has been devoted to the consequences of migrant workers on the domestic
labor market, though several assertions have been made based on circumstan-
tial evidence. One of the main reasons for the lack of research on this area is
the high incidence of undocumented migrant workers, who are mostly
engaged in rural agricultural activities and in the informal economy of the

TABLE 7
SELECTED PERFORMANCE INDICATORS IN MANUFACTURING, 1986-1997
Value
Labor Added:
Annual Cost per Value Gross
Nominal Employee Unit Labor Added per Value of Skill
Year wages (RM) (RM) Cost Worker Output Intensity
1986 7,584 7,584 0.086 25,379 0.286 0.14

1987 7,479 7,479 0.076 25,720 0.264 0.13
1988 7,394 7,394 0.068 27,162 0.249 0.13
1989 7,650 7,650 0.066 29,499 0.255 0.12
1990 7,901 7,901 0.069 29,038 0.256 0.12
1991 8,610 8,610 0.070 31,875 0.259 0.13
1992 9,506 9,506 0.073 33,942 0.620 0.13
1993 10,155 10,155 0.075 36,426 0.268 0.13
1994 11,101 11,101 0.069 40,421 0.252 0.14
1995 11,850 11,850 0.067 42,913 0.241 0.14
1996 13,232 13,232 0.070 49,377 0.261 0.14
1997 14,524 14,524 0.069 56,093 0.266 0.16
Average annual growth (%)
1986-1990 1.0 1.0 -5.4 3.4 - -3.8

1990-1993 8.7 8.7 2.8 7.8 - 2.7
1994-1997 9.4 9.4 0.0 11.5 - 4.6
SOURCE: Computed from establishment surveys carried out by the Department of Statistics,
1986-1997.
services and manufacturing sectors. As such data on their activities are patchy
to do any meaningful analysis. Since 1991, the manufacturing sector has been
sanctioned to employ foreign labor, and at present is the largest employer of
documented migrant workers. The following thus examines the effects of
migrant worker employment in the formal manufacturing sector. This sector
has been the most dynamic sector in terms of output, employment and exports.
Despite the increasing participation of foreign workers in the labor
market, wages have increased significantly during the high growth phase.
Nominal wages in manufacturing grew by about one percent between 1986
and 1990, but with continued strong growth, nominal wages rose by about
9 percent between 1990 and 1997 (Table 7). Wage growth increased from 8.7
percent between 1990 and 1993 to 9.4 percent between 1994 and 1997,
despite the increasing absorption of migrant workers in manufacturing.

TABLE 8
AVERAGE MONTHLY NOMINAL WAGES IN MANUFACTURING
BY OCCUPATIONAL CATEGORY, 1986-1997(IN RM)
Production Workers
Employed
Profes- Technicians through
sionals and and Clerical General Directly Labor
Year Managers Supervisors Workers Workers Employed Contractors
1986 3,040 1,101 762 522 431 442

1987 3,099 1,123 773 509 419 442
1988 3,129 1,132 782 517 415 490
1989 3,370 1,184 791 550 440 504
1990 3,364 1,201 810 557 456 558
1991 3,712 1,303 853 601 497 583
1992 3,905 1,425 901 660 554 597
1993 3,972 1,511 900 677 598 656
1994 4,340 1,634 1,042 709 654 710
1995 4,351 1,727 1,097 777 710 791
1996 4,725 1,940 1,201 885 790 854
1997 4,985 2,044 1,291 953 863 924
Average annual growth (%)
1986-1990 2.6 2.2 1.5 1.6 1 6

1990-1997 5.8 7.9 6.9 7.8 9.5 7.5
SOURCE: Computed from establishment surveys carried out by the Department of Statistics,
1986-1997.
Hence, at the macro level, the use of migrant workers in manufacturing did not
lower the wages of local workers, rather it augmented labor supply and has
helped to subdue wage inflation, contributing to low-inflationary high growth.
Wages would have escalated beyond the average annual rate of 9 percent in
the 1990s if not for the increasing use of foreign workers.
The employment of foreign workers has increased across all skill catego-
ries (Table 9). Nonetheless, rapid growth has exerted upward pressure on
wages for all skill levels. The majority of foreign workers are employed as less-
skilled production workers, and this occupational category has registered the
highest wage increase of between 8 to 10 percent (Table 8). The more labor-
intensive industries that were fast losing their labor cost competitiveness, as
reflected by the rapidly rising labor cost per employee, continued to remain
viable by increasingly relying upon foreign labor. The labor cost per employee

had declined from 1986 to 1988, but with full employment and unabated
growth, it has increased at an annual rate of around 9 percent between 1990
and 1997 (Table 7). It has been argued that the presence of foreign labor tends
to dampen market wage rate and to decrease the employment opportunities
of domestic workers. The presence of foreign workers is said to have a
substitution effect, though the amount of displacement is likely to be less than
the total employment of foreign workers (Consultancy Unit, University of
Malaya, 1995). However, under conditions of full employment, such as that
experienced by Malaysia in the early 1990s, the displacement effect, if any,
would be negligible.
The escalating wages in the early 1990s narrowed the gap between labor
productivity and wages, and exerted pressure on unit labor costs. Between
1990 and 1993, labor productivity in manufacturing, measured as value
added per worker, rose by 7.8 percent, whereas wages grew by 8.7 percent.
The unit labor cost rose by about 2.8 percent annually during this period.
Wage increases in manufacturing can largely be attributed to labor scarcity
rather than a rise in skill intensity during this period. Skill intensity in
manufacturing declined from 0.14 in 1986 to 0.12 in 1990. Skill intensity is
measured as the ratio of professionals, managers, technicians and supervi-
sors to the total workforce in manufacturing. According to a World Bank
study, the skill shortages and high wage premium for skilled workers had
depressed investment in skill-intensive industries and the investment that
has taken place has had a greater effect on unskilled than skilled labor
demands because of the easy availability of unskilled foreign workers
(World Bank, 1994:16-18). However, since 1993, skill intensity has increased
steadily from 0.12 in 1990 to 0.16 by 1997. The tremendous efforts and focus
on increasing the supply of and demand for skilled workers seems to have
had positive effects on skill-intensity in manufacturing from 1993. But
efforts at industrial upgrading seem to be progressing very slowly as
reflected by the ratio of value added to gross value of output.
As noted earlier, the shortage of unskilled and semi-skilled labor in
manufacturing has been increasingly met by foreign labor. The share of
expatriates in the professional and managerial category has risen from 5.8
in 1986 to around 9 percent in 1992 (Table 9). Similarly, the ratio of
expatriates in the technical and supervisory category has increased two-
fold from 1.5 percent to 3.2 percent during the same period. However, since
1992, the ratio has declined. One reason could be the increase in the local
supply of professional and technical manpower. The majority of foreign
workers are employed as unskilled and semi-skilled production operators.
They are either employed directly by employers or through labor contrac-
tors and both categories of employment have increased significantly. Those
employed directly have increased by 16 percent from 1.3 percent since 1986,

TABLE 9
EMPLOYMENT SHARE OF FOREIGN WORKERS IN THE MANUFACTURING SECTOR,
1986-1996 (PERCENTAGE)
Full-time Employees
Production
Workers
Production Employed
Managers Technicians Workers Through
and and Directly Labor Part-time
Year Professionals Supervisors Employed Contractors Employees
1986 5.8 1.5 1.3 3.6 1.8

1987 6.0 1.5 1.2 4.2 2.7
1988 6.3 1.7 1.2 5.5 2.9
1989 6.7 1.7 1.2 5.8 3.1
1990 8.2 2.0 1.4 6.9 2.7
1991 8.9 2.1 1.7 7.0 5.3
1992 8.6 3.2 2.8 10.9 4.6
1993 8.3 1.1 6.4 17.9 5.3
1994 8.2 0.0 9.6 23.7 5.2
1995 7.6 0.0 12.0 26.1 2.7
1996 7.4 1.5 17.3 28.0 0.5
SOURCE: Computed from establishment surveys carried out by the Department of

Statistics.
NOTE: The establishment surveys have discontinued the breakdown figures on Malay-
sians and non-Malaysians from 1997 onwards.
whereas those employed through contractors have risen by about 24 percent

from 3.6 per in 1986.
The increasing employment of migrant workers has also resulted in
greater informalization and semi-formalization of employment practices in
manufacturing. Foreign workers are employed on a short-term basis, and
must renew their work permits annually. Their services can be terminated
at very short notice. There has also been an increasing tendency to hire
migrant workers through labor contractors as noted earlier. Those em-
ployed through contractors are usually paid daily wages or on piece-meal
basis, and hence their employment status is much more precarious.
Thus in the labor-intensive industries where the profit margins heavily
rely on labor costs, there has been a rising trend towards greater casualization
of employment through the use of foreign labor. The increasing absorption
of foreign workers enables firms to maintain more flexible production
schedules and to cope with increasingly competitive international markets.

By recruiting a certain percentage of foreign workers whose employment

tenure is less certain and who are more willing to do overtime compared to
Malaysian workers, employers are able to maintain employment and labor
cost flexibility. Further, firms increasingly relied on foreign workers who were
less mobile to provide a relatively stable and reliable workforce during the
high growth phase of the early 1990s when job-hopping among Malaysian
workers began to disrupt production schedules (ISIS, 1995).
Conclusion
Malaysia’s foreign labor management policy has been variously described

as wavering, stop-go and inconsistent. However, if one views it as a labor
market tool, behind the apparent policy inconsistencies lie clear policy goals
to promote unfettered growth and to foster industrial upgrading through a
flexible foreign worker policy. Malaysia’s foreign labor policies have al-
lowed controlled import of foreign labor to soften the impact of structural
adjustments on the economy and to ensure Malaysia’s competitiveness in
traditional sectors that were fast losing their comparative advantage. Ma-
laysia has relied on the large pool of surplus labor in the region to manage
low-inflationary high growth with high levels of employment as well as to
ensure relatively low levels of unemployment during the low or negative
growth years.
The import of foreign workers has also led to greater labor market
flexibility. Labor intensive industries whose profit margins depend heavily
on labor costs rely on foreign workers who have less employment security
to maintain their comparative cost advantages. The use of foreign workers
has also allowed firms to maintain more flexible production schedules to
cope with increasingly competitive international markets.
A range of policy mechanisms has been used to regulate the inflow of
foreign labor. These policy instruments target the price, quantity and
quality of labor imports to control labor supply to meet sectoral labor
imbalances and skill gaps. These policy instruments have, however, re-
corded mixed success as reflected by the presence of large numbers of
undocumented workers. These policy instruments tend to raise the costs of
employment for both employers and employees and encourage illegal
entry and employment. Lax enforcement and malpractices in enforcing the
stringent rules and regulations have compounded the problem of illegal
entry and employment. Tight immigration policies have nonetheless pre-
vented an influx of foreign labor into Malaysia, especially economic refu-
gees from Indonesia following the financial crisis in 1997. The economic
slowdown in Malaysia in 1998 and the increased surveillance and enforce-

ment of immigration laws had, in fact, resulted in a perceptible decline in

foreign undocumented foreign workers.
Malaysia has been fairly successful in managing the inflow of foreign
labor through a comprehensive and integrated strategy to reduce its reliance
on foreign labor. Malaysia’s experience shows that immigration polices are
necessary but not sufficient. It must be complemented and supplemented by
other labor market development policies and strategies to upgrade the economy.
Malaysia’s experience in managing foreign labor also shows that policies
to regulate the inflow of foreign workers must be simple and transparent, easy
to execute and more importantly be supported by adequate legal framework
and institutional capacity to monitor and enforce existing regulations.
REFERENCES
Azizah, Kassim
1999 “Recent Trends in Migration Movement and Policies in Malaysia.” Paper presented
at the Workshop on International Migration and Labor Markets in Asia organized
by the Japan Institute of Labor in Tokyo, 28-29 January.
1997 “Management of Foreign Labor: A Malaysian Experiment.” Paper presented at the

Second Asia Pacific Conference of Sociology at the University of Malaya, Kuala
Lumpur, 18-20 September.
1996 “Foreign Workers in Malaysia: An Analysis of Sanctioned Bondage.” Unpublished

paper. Kuala Lumpur.
1995 “From Neglect to Legislation: The Changing State Response to the Inflow of Illegal
Labor into Malaysia.” Paper presented at the Malaysian Social Science Association
Conference, Penang, 19-21 January.
1991 “Recruitment and Employment of Indonesian Workers: Problems and Major Policy
Issues.” Paper presented at the ILO Inter-Country Workshop on Migrant Labor in
Plantation Industry, Kuala Lumpur, 12-17 November.
Bank Negara Malaysia

2000 1999 Annual Report. Kuala Lumpur: Bank Negara Malaysia.
Center for Economic Research and Services, Malaysian Business Council

1991 The Way Forward. Malaysia: Institute of Strategic and International Studies.

Chris, E.
1997 “Foreign Labor in Malaysian Development: A Strategic Shift?” IKMAS Working
Paper, No.6, Kuala Lumpur, January.
Consultancy Unit, University of Malaya

1995 Impact Study on the Policy of Employment of Foreign Workers. Report submitted
to the Ministry of Human Resources, Malaysia, December, Kuala Lumpur.
Institute of Strategic and International Studies (ISIS)

1996 Industrial Master Plan, 1996-2000: Human Resource Development. Vol. III. Foundation
Report, May, Kuala Lumpur.
Kanapathy, V.
1997 “Labor Market Issues and Skills Training: Recent Developments in Malaysia.” Paper
presented at the Sixth Human Resource Development Task Force Meeting in
Montreal, 30-31 May.
Malaysia
2001 The Second Outline Prospective Plan, 1991-2000. Kuala Lumpur: Government
Printers.
1996 Seventh Malaysia Plan, 1996-2000. Kuala Lumpur: Government Printers.
1993 Mid-term Review of Sixth Malaysia Plan, 1991-1995. Kuala Lumpur: Government
Printers.
1981 Fourth Malaysia Plan, 1981-1985. Kuala Lumpur: Government Printers.
1976 Third Malaysia Plan, 1976-1980. Kuala Lumpur: Government Printers.
Ministry of Finance
2000 Economic Report, 2000/2001. Kuala Lumpur: Malaysia National Printers Limited.
Ministry of Labor
n.d. “Labor and Manpower Report, 1987/88. Kuala Lumpur: Ministry of Labor.
Mehmet, Ozay
1996 Development in Malaysia: Poverty, Wealth and Trusteeship. London: Croom Helm.
Pillai, P.
1998 “Malaysia Country Paper.” Paper presented at the Workshop on International
Migration and Labor Markets in Asia. Organized by the Japan Institute of Labor,
OECD and ILO, Tokyo, 29-30 January.

1996 “Update on the Labor Situation in Malaysia.” Paper prepared for the International
Organization for Migration, Regional Office, Bangkok, May.
1995 “Labor Migration in Asia: Malaysia,” Asean Economic Bulletin, 12(2):221-236.
1992 People on the Move: An Overview of Recent Immigration and Emigration in Malaysia.
Kuala Lumpur: ISIS.
World Bank
1995 Malaysia: Meeting Labor Needs: More Workers and Better Skills. Washington: World
Bank.

APPENDIX 1
456
EVOLUTION OF FOREIGN LABOR MANAGEMENT POLICIES IN MALAYSIA

Year Policy Objectives Policy Measures/Instruments Policy Outcome
1984 Medan Agreement signed with Indonesia to ease labor Bilateral agreement to z Failed to stem
shortages in selected sectors. Similar agreements were z curb unauthorized entry unauthorized entry
signed with the Philippines, Thailand and Bangladesh. z encourage legal recruitment and employment
1989 Foreign Worker Regularization Program to: z Registration of irregular z Only one-third
z weed out irregular Indonesian plantation workers workers in plantation registered
z prevent displacement of local workers z Plantation workers on a 3-year z Freeze on the intake
contract were to receive similar of workers from
wages and benefits Indonesia from 1 Jan.
1990
1991 Oct Comprehensive Policy on the Recruitment of Work permits issued to:
Foreign Workers to: z plantation and construction automatically
z ease labor shortage in selected sectors z manufacturing and services
z document and legalize entry and employment of all allowed with documentary evidence
foreign workers of recruitment difficulties
z protect rights of citizens to employment z documentary evidence of
recruitment difficulties
z foreign workers not allowed to
change location, employer or sector
of employment
z foreign workers to receive similar

wages and benefits
z mandatory contribution to Social
Security Organization (SOCSO)
z option to contribute pension funds (EPF)
z contract of employment to be signed
z employer to bear cost of recruitment
APPENDIX 1 (continued)
z employer to bear security bond

placed with Immigration Department
z employer accountable for worker
for duration of employment
z applications vetted by the Committee
on Foreign Labor in MOHR,
reviewed by the Committee in the
MOHA, prior to approval by
Immigration Department
1992 Imposition of annual levy to: Levy imposed varying by sector and Employers in larger firms
Budget z to raise employment cost of foreign workers to skill (general worker, semi-skilled bore the cost of levy but
discourage employers from being over-dependent on and unskilled) tendency among smaller
migrant workers z Agriculture (RM 360; RM540 establishments to pass on
z safeguard employment opportunity for citizens and RM 720) the levy to workers.
z Construction (RM420; RM600
and RM900)
z Services (RM360; RM540 and RM720)
z Manufacturing (RM420; RM600
and RM900)
FOREIGN LABOR MANAGEMENT POLICIES IN MALAYSIA
Expatriates (Technical - RMI, 200; Professional

Middle Management - RMI, 800; Professional

Upper Management - RM 2,400)
1992 Foreign Worker Regularization Program to legalize z Registration of irregular workers 483,784 irregular workers
migrant workers. Program lasted from Jan 1992 to z Followed by security operations registered
Aug 1994 code-named Ops Nyah I to curb
illegal entry
457
458

1993 April Ban on further recruitment of all low-skilled foreign z Ban on new recruit of low-skilled z Unauthorized entry and
workers to stem unauthorized entry and employment workers employment continued.
Employers to recruit from Appeals from
detention centers employers to lift ban
Applications processed by
Committee in MOHA
1993 June Ban lifted for selected skills following appeals z Ban lifted for skilled and
from employers to ease excess demand semi-skilled workers
1994 Jan Ban re-imposed on all sectors to stem unauthorized entry z Ban on new recruits of skilled z Unauthorized entry
and employment and semi-skilled workers and employment
Previous approvals to recruit continued
from detention centers Limited recruitment
from detention centers
1994 June Ban lifted for manufacturing z Ban lifted for skilled workers
sector to ease labor shortage
1994 Oct One-stop agency established to coordinate z Establishment of a Task Force Recruiting agencies now
policy implementation on Foreign Workers to take over service employers
all recruitment, except domestic
helpers and shop assistants

z Employers to apply directly
to Task Force
1995 Oct New guidelines on the recruitment of z Eleven new guidelines issued to
foreign workers issued make applications and approval
more transparent
1995 Aug All recruitments undertaken by Task Force z Task Force made the sole agent
to stem exploitation by agents for labor recruitment dealing
with agents overseas, except for
domestic helpers and shop assistants
1996 Foreign Worker Regularization Program to z Registration of irregular workers z 554,941 irregular
legalize irregular workers. From Jun 1996 to Dec 1996 z Followed by security operations workers registered
code-named Ops Nyah II to out of an estimated 1.2
weed out irregular workers million, so amnesty
z 3 months of amnesty (Oct - Dec extended to 1 Feb.
1996) followed by joint army- 1997when the
police security sweep amended Immigration
z Formation of 16 enforcement Act took effect.
teams and allocation of RM10
million to build detention centers
1997 Jan Changes in Task Force to improve efficiency z Task Force to become a z Institutional capacity
separate unit within Immigration beefed up
Department z Speedier processing
1997 1977 Amendments to Immigration Act to control z Heavier fines imposed z Reduction in unautho-

unauthorized entry and employment (Act proposed in for irregular foreign workers rized enty and employ-
Oct 1996 and gazetted on 1 Feb. 1997) and employers ment
1997 Mar Task Force disbanded due to ineffectiveness z Task Force functions taken over z Speedier and less
by the Foreign Workers Division cumbersome processing
of the Immigration Department of work permits
459
460

1997 Foreign Worker Regularization Program in Sabah z 6-month regularization program z About 250,000 illegal
to weed out irregular migrant workers. to register about 500,000 workers registered.
From March to August. irregular workers
Joint operations by Federal and
State agencies
1997 Aug A total ban on the import of all migrant workers z The ban was accompanied z Fears of mass exodus
imposed in August following the July 1997 financial crisis by non-renewal of all expired of migrants from crisis-
to protect the rights of its citizens to employment. Changes work permits. hit Indonesia did not
in employment conditions for sectors contributing to z Those affected could opt to be materialize
export and economic growth. re-deployed to the plantation z Total ban was lifted for
sector or return home domestic helpers and
z Length of stay raised: plantation, island resort workers
7 years and manufacturing, 6 years following appeals
z Increased surveillance and z For other jobs the ban
border patrolling was in force until
October 1998.
1998 Foreign Worker Regularization Program in Sarawak z Launched between February

to weed out irregular migrant workers and March
1988 Annual levy raised to discourage use of foreign labor z Annual levy raised to RM1,500
and mandatory contribution to national pension fund to for all sectors, except agriculture

reduce foreign exchange flow. and domestic helpers which remained
at RM360
z Imposed tighter conditions on
domestic helpers employment - RM10,000
monthly income ceiling for Filipino
and Sri Lankan maids.
z Except domestic helpers, all migrant
workers must contribute to EPF.
Employer pays 12 percent and
employee 11 percent of monthly wages.
2001 Oct Maximum limit of temporary work pass z Issue of temporary work pass
reduced to cut back on migrant workers limited from seven to three years
due to economic slowdown
NOTES: MOHA refers to Ministry of Home Affairs

MOHR refers to Ministry of Human Resources
EPF refers to Employees Provident Fund

461

International Migration and Labor Market Adjustments in Malaysia-The Role of Foriegn Labor Management Policies

Hochgeladen von

Dokumentinformationen

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

International Migration and Labor Market Adjustments in Malaysia-The Role of Foriegn Labor Management Policies

Hochgeladen von

Copyright:

Verfügbare Formate

International Migration and Labor

Market Adjustments in Malaysia:

Malaysia has long been an importer as well as an exporter of labor, but

Downloaded from amj.sagepub.com at Southern Illinois University Carbondale on March 5, 2015

foreign labor policies. Official policy allows controlled imports of foreign

Downloaded from amj.sagepub.com at Southern Illinois University Carbondale on March 5, 2015

Agriculture 30.0 23.5 16.2 8.4 5.0 3.8 0.5

Structural Changes and Foreign Worker Particiation in the

Downloaded from amj.sagepub.com at Southern Illinois University Carbondale on March 5, 2015

EMPLOYMENT BY MAJOR ECONOMIC SECTORS, 1970-2000 (Percentage Share)

Agriculture 53.5 39.7 26 15.5 0.7 -0.9 -2.3 -485

Downloaded from amj.sagepub.com at Southern Illinois University Carbondale on March 5, 2015

GDP Growth Labor Force Total Employed Unemployment Inflation

1975 0.8 4,230 4,025 6.9 4.5

Downloaded from amj.sagepub.com at Southern Illinois University Carbondale on March 5, 2015

Downloaded from amj.sagepub.com at Southern Illinois University Carbondale on March 5, 2015

about 52 percent of the new jobs On the contrary, employment in agriculture

Downloaded from amj.sagepub.com at Southern Illinois University Carbondale on March 5, 2015

Management of Foreign Labor

The inflow of migrant workers in Malaysia is governed by immigration

Downloaded from amj.sagepub.com at Southern Illinois University Carbondale on March 5, 2015

agreements, it also determined the nationality of the migrant workers. Due to

Downloaded from amj.sagepub.com at Southern Illinois University Carbondale on March 5, 2015

permits for migrant workers are governed by stringent regulations in order to

Downloaded from amj.sagepub.com at Southern Illinois University Carbondale on March 5, 2015

Downloaded from amj.sagepub.com at Southern Illinois University Carbondale on March 5, 2015

(1968) was amended to increase the fine from RM5,000 to a maximum of

Downloaded from amj.sagepub.com at Southern Illinois University Carbondale on March 5, 2015

Downloaded from amj.sagepub.com at Southern Illinois University Carbondale on March 5, 2015

cultural factors that tend to enhance Malaysia’s propensity to absorb mi-

Labor Market Development Strategies

The role of foreign labor management policies must necessarily be viewed

Downloaded from amj.sagepub.com at Southern Illinois University Carbondale on March 5, 2015

Magnitude of Foreign Workers in Malaysia

As explained earlier, the foreign worker population in Malaysia is distin-

Downloaded from amj.sagepub.com at Southern Illinois University Carbondale on March 5, 2015

SOURCES:Immigration Department (unpublished); Ministry of Finance, 1998, Economic

The Import of Professional and Technical Workers/“Expatriates”

The number of expatriates in the country is relatively insignificant, compared

The Import of Migrant Workers/Semi-skilled and Unskilled Workers

While it is commonly acknowledged that Malaysia is a large net importer

Downloaded from amj.sagepub.com at Southern Illinois University Carbondale on March 5, 2015

Number of Visit Official Estimates of

1984 500,000 Ministry of Human Resources, nd:15

porous Malaysian border. Nonetheless, with a more coherent policy on

Downloaded from amj.sagepub.com at Southern Illinois University Carbondale on March 5, 2015

only) as well as official data released occasionally. The earliest official

Downloaded from amj.sagepub.com at Southern Illinois University Carbondale on March 5, 2015

Domestic Cons- Manu-

Bangladesh 2 16,615 76,779 11,439 5,953 - 110,788

Total 45,317 90,431 23,131 3,759 99,053 1,218 262,909

The Consequences of Migrant Worker Participation in the

Despite the enormous literature on migrant workers in Malaysia, little work

Downloaded from amj.sagepub.com at Southern Illinois University Carbondale on March 5, 2015

1986 7,584 7,584 0.086 25,379 0.286 0.14

Average annual growth (%)

1986-1990 1.0 1.0 -5.4 3.4 - -3.8

Downloaded from amj.sagepub.com at Southern Illinois University Carbondale on March 5, 2015

1986 3,040 1,101 762 522 431 442

1986-1990 2.6 2.2 1.5 1.6 1 6

Downloaded from amj.sagepub.com at Southern Illinois University Carbondale on March 5, 2015

Downloaded from amj.sagepub.com at Southern Illinois University Carbondale on March 5, 2015

1986 5.8 1.5 1.3 3.6 1.8

SOURCE: Computed from establishment surveys carried out by the Department of