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A Critical Appraisal of Policies and Laws Regulating Migrant Workers in Malaysia

Evelyn S. Devadason* and Chan Wai Meng**

The paper reviews policies and laws governing migrant inflows and their presence in the Malaysian economy. The study finds that policy failures are basically built on ad-hoc management of in-migration, lack of enforcement of existing regulations and abusive practices of various stakeholders. Likewise, work and provision of basic rights for migrants under specific laws are found to be somewhat discriminative and arbitrary. Hence, the immediate challenge for policymakers is to ensure effective management of migrant workers, beginning with a clear policy on recruitment, placement, monitoring, and finally the return of migrant workers to their homeland. Further amendments to specific laws are needed to ensure that migrant workers are accorded equal labour standards and basic rights as that of locals. Finally, regulating in-migration through the price effect is essential, so as to ensure that migrants no longer provide an undesirable cost-saving option for employers. In this context, the role of migrant workers in the various sectors of the economy needs to be critically redefined, and their contribution to economic welfare broadly understood, to maximize the benefits of temporary migration.

Field of Research: Labour Economics, Migration

1. Introduction
Malaysia records a total of 1.9 million registered (documented or regular 1) migrants, constituting approximately 21 per cent of the workforce (MOF 2010), thereby making Malaysia the largest importer of labour in Asia (Prasai 1993; Gurowitz 1999, 2000; Kanapathy 2006; Amarjit 2004, 2007). To date, a total of 15 countries supply workers in various employment sectors, with the largest number coming from Indonesia (1.2 million) followed by Nepal as the distant second. Interestingly, despite their large presence in the economy, the policies and laws regulating in-migration has been one of the most erratic. In fact, it has placed Malaysian policymakers on the radar of international organizations for lacking clear direction. Policy reversals (retrenchments, deportations and import bans followed with return migration and lifting of those bans) on in-migration are frequently deployed in the Malaysian case. Trying to reign in the excess dependency is a reflection of the ad hoc management of in-migration. Policies built on the concept of a short-term remedy for labour shortage problems exposed the failure on the part of policymakers to recognize the critical contribution of migrant workers over the longer term (Yaw 2002).

Evelyn S. Devadason, Faculty of Economics & Administration, University of Malaya. Email: ** Chan Wai Meng, Faculty of Business & Accountancy, University of Malaya.

In-migration per se is not the cause for the lack of human resource development or expansion of low value-added activities, but rather the absence of a comprehensive policy on in-migration as an integral part of national strategies for economic growth that has instead affected the trajectory of the economy. Confusion on the fundamental reasons for in-migration has inadvertently sparked off intense debates on the necessity of migrant workers between the various stakeholders, namely the policymakers, unionists, employers and employees. In-migration therefore continues to remain a contentious issue aside from receiving wide media coverage. Inmigration has now emerged top on the national agenda, and considered amongst various other reasons for Malaysia being stuck in a prolonged middle-income trap status. (BNM 2010; NEAC 2010). The government therefore remains committed to reduce migrant workers to 1.5 million by 2015. Malaysia is considered an intriguing case study given the paradox of the importance of in-migration to the economy, the misguided perception of the role of migrant workers, followed by conflicting and pervasive laws and regulations. Some questions that follow from this paradox that are worth re-examining are: What is the role played by migrant workers in the past? What are major setbacks in existing policies and laws related to migrant workers? How best can the inflows of migrant workers be regulated to meet the demands of the industry and simultaneously be aligned with national objectives? The paper is structured in the following manner. The next section documents some facts on migrant workers to provide the context of the paper. Section 3 reviews the chaotic regulations that shape in-migration to Malaysia. Section 4 reviews specific labour laws deemed pervasive towards migrant workers. Section 5 concludes with some policy challenges to regulate and manage migrant workers.

2. A Snapshot of Migrant Workers in Malaysia

The governments policy stance was to permit in-migration as a short-term2 response to address labour shortages in critical sectors. The use of migrant workers therefore gained wide acceptance, first in agriculture (plantations), followed by construction and services (Table 1), where it was perceived that any form of improvements in wages and conditions of work could still not attract domestic workers in sufficient numbers to fill those gaps in demand. The locals considered work in the agricultur e, domestic and non-domestic services (wholesale, retail, hotel and restaurant services) to be below their expectations, whilst many did not find the conditions in the estates and construction sites appealing, more so that construction work entailed high risks. Overall, the manufacturing sector has indeed moved towards greater utilization of migrants vis--vis the plantation and construction sectors (Azizah 2005), thereby emerging as the largest employer of migrant workers. Unlike other sectors, concerns prevail on the use of migrant workers in the manufacturing sector, as this sector is not considered unappealing to the locals. Manufacturing employers are therefore perceived to favour migrants over locals, and subject to frequent attack by unionists and policymakers on the labour shortage issue and the inability to secure local workers. The unionists assert that businesses and enterprises prefer migrants to local citizens for the following reasons. First, migrants may be easily exploited, as they do not normally seek recourse to law and justice given their temporary status.

Second, they are believed to be diligent, docile and willing to work overtime including public holidays and weekends 3. Third, migrant workers are ready to accept lower pay than that offered to local workers, are prepared to risk their lives and work in deplorable conditions. Table 1: Distribution of Migrant Workers by Key Sectors (in %)
Sector Agriculture

1985 50.1 6.9 15.0 20.3 --% Number 000 95.3 212

1990 37.7 8.8 34.4 19.1 --99.5 441

2000 24.8 38.1 8.5 6.7 22.0 100.0 807

2005 26.0 32.1 15.5 8.8 17.6 100.0 1815

2009 26.1 34.6 15.6 10.6 13.1 100.0 1918

Manufacturing Construction Non-Domestic Services Domestic Services TOTAL

Notes: 1 Includes forestry, fishing and mining 2 Includes domestic services --- Not available Sources: Athukorala and Manning (1999), Athukorala (2006) and based on unpublished official sources.

The general rise of migrant workers in the Malaysian economy is guaranteed by the cheap labour supply from neighbouring countries. Indonesia has been the main import source since 1992 when the government officially permitted their recruitment in manufacturing. In 2001, there was a temporary halt on the recruitment of Indonesian workers due to some unlawful demonstrations by them at a factory site. This was compounded with major diplomatic confrontations with Indonesia, when the then Prime Minister of Malaysia announced that the illegal workers represented a major threat to national security and introduced new laws providing for the caning and deportation of undocumented workers in 2002. As a result, many Indonesians returned to their homeland. Subsequently, the government reviewed its policy on migrants in 2002, one of which is to reduce the magnitude of workers from any specific nationality. Though the Indonesians still constitute the largest share of migrant workers, there is now relatively a broader pool of migrants of various countries (Philippines, Bangladesh, Vietnam, Pakistan, India, Sri Lanka, Nepal, Thailand, Myanmar, Cambodia, Lao PDR, Vietnam, Uzbekistan, Kazakhstan and Turkmenistan), thereby leading to greater heterogeneity. Cross-border flows and recruitment preferences towards Muslim countries are no longer key factors to inmigration. The heterogeneity of migrants based on nationality is also observed in terms of occupational categories. Based on the occupational categories of labour, Table 2 shows that migrant workers are mainly employed as production workers/ operators (see also Athukorala and Manning 1999; Azizah 2005; BNM 2010; NEAC 2010; World Bank 2010) in manufacturing. A majority of the production workers are directly employed instead of employed through labour contractors. Whilst the share of production workers in total foreign employment increased with time, the shares of foreigners occupying professional and managerial (skilled) positions dwindled over the period of study. This supports the fact that migrant workers largely occupy unskilled jobs in manufacturing, and also other economic sectors (World Bank, 2010).

Table 2: Distribution* of Migrant Workers by Occupational Categories in Manufacturing

Occupational Category Professional & Managerial Technical & Supervisory Clerical & Related Occupations General Workers Production/ Operative Workers 1985 18.16 3.63 1.45 3.66 73.10 1990 15.67 3.01 0.78 2.77 77.77 1995 3.38 1.19 0.21 0.87 94.36 2000 2.28 1.31 0.16 1.48 94.77 2005 1.48 1.24 0.18 2.32 94.78

TOTAL 100 100 100 100 100 Note: * Percentage of total migrant workers in manufacturing. Source: Calculated from unpublished returns from the Department of Statistics, Malaysia.

The above summarizes several key points: Across major economic sectors, the manufacturing sector, for one, has moved towards greater utilization of migrant workers, particularly in the unskilled segments. The main points of contention are their large and growing numbers, their penchant for entering the country and working illegally, and their penetration into so-called non-designated jobs (particularly in manufacturing) which lend them to compete with locals and/or depress wages (Idris and Rahmah 2006). Notwithstanding the afore-mentioned sentiments, it should be noted that migrants do contribute to economic growth through various means, such as raising the returns from other factors of production (land, capital and the many types of labour that are their complements in production). The subsequent discussion deliberates on the shortcomings in the policies and laws governing the hotly debated presence of unskilled4 migrant workers (production/ operative workers) in Malaysia, which may also have partially contributed to the anti-immigration sentiment.

3. Policies Regulating and Managing Migrant Inflows: Chaos in the House

The inflows of migrants in the various economic sectors are governed by the informal use, followed by subsequent legalization (see Table 3). To regulate in-migration, the government signed Memorandum of Understanding (MoU) with several designated countries (see also Amarjit 2010). The first of such agreements was the landmark Medan Agreement signed between Malaysia and Indonesia in 1984, followed by various MoUs between Malaysia and the Philippines, Bangladesh, China, Vietnam, Pakistan and Thailand. Following that, the private sector was permitted to set up employment agencies to officially recruit migrant workers from the afore-mentioned countries. Failing to combat the increasing inflows of illegal migrants, the government, in 1995, put a stop to private sector recruitment agencies and replaced them with a Task Force on Foreign Labour. Table 3 indicates that the frequent sanctions on the importation of migrant workers pre-1995 persisted into the post1995 period, suggesting that the special Task Force, likewise, had failed to stem the employment of illegal workers. The Task Force was then disbanded in 1997, and in 2002, recruitment procedures were subject through G to G agreements.

Table 3: Chronology of Policies Related to Migrant Workers, 1980-2010

1982 1984 1985-86

Policy/ Regulation
Formation of Committee for the Recruitment of Foreign W orkers. Medan Agreement with Indonesia for agri-plantation and domestic workers. Signing of the MoU between Malaysia and the Philippines for domestic workers; Permission given for employers to recruit workers from Bangladesh and Thailand for the plantation and construction sectors. Legalized the use of Indonesian workers in the plantation sector. Regularization programme. Freeze on labor importation from Indonesia. Formation of Cabinet Committee on Foreign Workers. Introduction of an annual migrant-worker levy, which varies by sector and skill category (general, semi skilled and unskilled). Agriculture (RM360, RM540 and RM720); Construction (RM420, RM600 and RM900); Manufacturing (RM420, RM600 and RM900); Services (RM360, RM540 and RM720). Launching of Ops Nyah I (Operation Expunge I - to stop illegal infiltration). Launching of Ops Nyah II (Operation Expunge II - to weed out illegal immigrants). Permission given for employers to recruit workers from Indonesia, Thailand, Philippines, Bangladesh and Pakistan for manufacturing and services sectors. Ban on unskilled worker recruitment. Ban lifted for manufacturing sector. Ban reimplemented on unskilled and semi-skilled workers for all sectors. Special Task Force on Foreign Labor (the sole agency for recruitment - a one-stop-agency to deal with the processing of immigrants). All levies increased by 100% except for agriculture and domestic service. It was raised to RM1200 for construction and manufacturing and RM720 for services. Freeze on the importation of skilled and unskilled labor except for critical sectors in manufacturing and recreation/ tourist industries. Hari Raya Amnesty for Indonesian illegal workers. Freeze on labor importation (employers were instructed to recruit directly from the immigration detention depots) eventually cancelled the exercise due to the lukewarm response from employers. Task Force disbanded functions taken over by the Foreign Workers Division of the Immigration Department. Ban on new recruitment on migrant workers due to the AFC. Second regularization exercise for illegal migrants from Indonesia, Thailand, the Philippines, Bangladesh and Pakistan. Annual levy per worker raised to RM1500 for the construction, manufacturing and services sector. It was maintained at RM360 for the plantation and domestic services sector. Mandatory contribution to EPF (12% and 11% of monthly wages by employers and employees respectively). Ban on the renewal of work permits for the services sector lifted. Ban on new recruitment lifted 120,000 new work permits approved for migrant workers in plantation and construction sectors. Freeze on the importation of migrant workers lifted. Levies are lowered for all categories (from RM1500 to RM1200), except domestic workers. New hirings of mostly Indonesian workers. Recruitment of Sri Lankans in the manufacturing sector. Mandatory contribution to EPF revoked. Ban on intake of Bangladeshis following clashes with locals. Maximum limit of temporary work pass limited from 5 years to 3 years.

1987 1989 Jan-90 1991 Oct-91

Dec-91 Jun-92 Jul-92 Apr-93 Jan-94 Oct-95 Dec-95 Jan-96 Apr-96 Aug-96 Jan-97

Mac-97 Aug-97


Jul-98 Oct-98 Nov-Dec-98 Feb-99 Oct-99 2001 May-01 Oct-01

Table 3 contd.
Policy/ Regulation Maximum work permit extended to a 3+1+1 ruling (except for domestic services). Ban on new recruitment of Indonesian workers in all sectors, except for domestic services. Mac-Jul-02 Amnesty programme. Jul-02 Recruitment of Cambodians in the agri-plantation, manufacturing and construction sectors. Jan-03 Restrictions lifted on Indonesian workers in the manufacturing and construction sectors. Apr-03 Freeze on hiring of migrant workers from SARs related countries. Sept-03 Signing of MoU between Malaysia and China for workers in ceramics and furniture. Oct-03 Amendment to Immigration Act 2002 higher penalty for illegal immigration. Mandatory whipping of up to six strokes of the cane for irregular migrants and their employers. Dec-03 Signing of the MoU between Malaysia and Vietnam. Mac-04 New requirement migrant workers to attend classes on Malaysian language and culture. Oct-04 Illegal workers allowed to return on official permits. 2005 Permission granted to migrant workers whose contracts have expired to change employers within the same economic sector as long as their work permits are still valid. Mac-05 Signing of the MoU between Malaysia and Pakistan. Aug-05 (i) RELA, or the Peoples Volunteer Corps given power to arrest unauthorized migrants until mid-2009 - provided opportunities for extortion. (ii) Levies are revised: RM1200 (RM960) for manufacturing and construction in Peninsular (East Malaysia); RM540 for plantations; and RM1800 (RM1440) for non-domestic services in Peninsular (East Malaysia). 2006 (i) Ministry of Home Affairs licensed 270 outsourcing companies to recruit mainly South Asian migrants. (ii) Electronic Labour Exchange (ELX) created at the MOHR mandatory for employers in plantation, construction, manufacturing and services to advertise vacancies in the ELX before they can apply to bring in migrant workers. Nov-06 Signing of the MoU between Malaysia and Indonesia Malaysian employers are asked to pay RM2,415 to a local agent while the domestic worker has to pay her Indonesia-based agent RM1,228. 2007 New outsourcing system that does not attach workers permits to a particular employer dilutes the control of the government. Jul-07 Major operation to round up an estimated 500,000 irregular migrants. Oct-07 Ban on the recruitment of Bangladeshi workers because of problems arising from agents (both recruiting agencies in their home country and outsourcing companies in Malaysia). Jan-08 Unskilled migrant workers will not have their work permits extended if they have been in the country for five years or more. 2009 Freeze on the issuance of new licenses for labour outsourcing companies. Jan-09 Freeze on labour importation to the manufacturing sector. Apr-09 Cost of levy to be borne by employers, instead of workers. Oct-09 Protests by migrant workers that employers continued deducting wages to cover the levy charges. Jul-09 Freeze on the importation of migrant workers lifted for specific industries. Nov-10 Compulsory medical insurance policy for migrant workers (excluding domestic maids) effective Jan 2011 - annual premium of RM120 per worker. Sources: (1) Chin (2002); Kanapathy (2004); Scalabrini Migration Center, Asian Migration Atlas. (2) Updated from official publications and press releases. Year Feb-02

Apart from the changes in the recruitment process, frequent import bans were imposed to cutback on the intake of migrants. These measures were generally shortlived, not lasting more than a year. Retrenchments and deportations of legal workers following any economic downturn were often reversed soon after employers bemoaned problems of labour shortages. For example, the Asian Financial Crisis (AFC) in the 1997 led to temporary movement to expel unskilled and undocumented migrant workers in August 1997 (see also Horton and Mazumdar 2001; Shamsulbariah 1998, 2003). Soon after in July 1998, migrant inflows were encouraged to arrest the decline in foreign direct investment. Similarly, the Global Financial Crisis (GFC) in 2008 once again reversed the preference towards migrants, as policymakers froze their intake in manufacturing in January 2009 amidst the rising number of company closures and ensuing job layoffs. Within a period of 6-months, the government reopened the intake of migrant workers in the electrical, electronics and textile industries, following appeals by key industry players on cancelled international sales orders due to labour shortfalls 5. Further, the government had in some cases resorted to encourage the re-migration of illegals as an immediate measure to alleviate labour shortages. In October 2004, undocumented migrant workers who were deported under a four-month amnesty programme were thereafter allowed to return on official permits. To arrest illegal migrant inflows, several amnesty programmes were launched since 1991. However, most of them had not met with much success 6 (Athukorala 2006), except for the March-July 2002 programme that saw the departure of a total of 570,000 illegals (Kanapathy 2004). It appeared that shutting legal channels for the recruitment of migrant workers were counter-productive as the inflows of illegal workers continued, largely abetted by corrupt practices of agents, immigration officials, police and employers (Asian Migrant Centre 2004). The situation worsened when the government enacted a new outsourcing system in 2007, permitting licensed companies to recruit migrant workers. This not only created an outsourcing industry that flourished on rent-seeking behaviour, but in turn spawned a range of abusive practices (NEAC 2010; Amarjit 2010). Responding to this with a freeze on licenses issued to outsourcing companies in 2009, the government has indeed begun to recognize that dilution of control by the state in matters of in-migration is a sure recipe for disaster. In the course of regulating the use of migrant workers across the various economic sectors, the government also sought efforts to deter the recruitment and retention of legal migrants by instituting market-based measures, such as the levy system in 1991 (with subsequent upwards revisions made in 1995, 1998 and 2005), the mandatory contributions to the Employees Provident Fund (EPF) in 1998 and the reduction in the maximum limit of the work permit in 2001. All policies were aimed mainly at increasing the costs of hiring migrants. Similar to that of non-market based measures, these policies backfired as employers switched to hiring illegals and under-reporting migrant wages to reduce their contributions to the EPF. As a result, the levies were lowered in 1999, the mandatory contribution to EPF was revoked in 2001 and the limit of the work permit was revised to five years from three years. It appears at the outset that the core problem is the lack of a comprehensive migrant worker policy and weak governance structures (Amarjit 2010). There seems to be chaos in the current management of migrant workers given the weak regulatory

framework, the lack of cooperation of the various stakeholders that pursue their own vested interests, and finally the conflicting views over labour market needs. Effective management proceeds with a clear policy, beginning with recruitment, placement, and finally return to homeland (if necessary, return migration). The following details shortcomings on specific laws related to work and provision of basic rights for migrant workers.

4. Specific Laws Governing Migrant Workers: Law of the Jungle

In Malaysia, it may be plausible that immigrant inflows do not just causes shifts in labour supply, but instead makes supply more elastic. In short, the supply of cheap unskilled migrant workers may in fact erode the bargaining power of their domestic counterparts. There is prior anecdotal evidence of a problem of this nature, with a wage gap identified between unskilled immigrants and their local counterparts (Mehmet 1986; Pillai 1995; Ruppert 1999; Lee 2010). It is difficult to comment conclusively on this matter despite the convincing evidence. However, the ad hoc management of migrant workers that allow for the abuse by the various stakeholders provide clear indications that unskilled migrant workers have indeed become a cheaper option for employers. Though the laws of Malaysia do not discriminate against migrant workers, in practice, the rights of migrant workers are not fully protected. Table 4 documents some of the abuses (though not exhaustive) towards migrant workers, akin to that of bonded or forced labour, as expounded by various human rights activists, unionists and nongovernmental organizations (NGOs). The MTUC estimates that approximately 15-20 per cent of registered migrant workers in the country are being mistreated (ITUC, 2010). Based on Table 4, there are some outright provisions outlined in labour laws with inherent biases against migrant workers, which are worth noting here. The minimum benefits of employment for migrant workers are basically found in the Employment Act 19557, the Labour Ordinance of Sabah, and the Labour Ordinance of Sarawak. The provisions which are relevant and applicable to migrant workers are similar in all three statutes. In the event of redundancy, the employer may terminate the employment of a local worker only after it has first terminated the employment of all migrant workers employed in a similar capacity as that of the local worker. The law clearly provides that the employer cannot terminate the employment of a local worker for the purpose of employing a migrant worker. This provision was added in on 1 August 1998 when Malaysia was in the midst of the AFC, purportedly to protect Malaysian citizens against unemployment. This however appears a non issue relative to some other rights, which were earlier conferred on migrants but had been removed subsequently. One of them pertains to the compulsory savings scheme for workers, which was established under the EPF Act 1991. The EPF scheme is not made compulsory to a migrant worker, but if the worker chooses to contribute, he/ she may do so at the minimum rate of 11 percent of the wages. The rate of the employers contribution depends on when the worker elects to contribute to the EPF. If the worker elected to do so before 1 August 1998, the employer is required to contribute a rate which is similar to that for a local worker, namely 12 percent of the wages. Conversely, if the foreign worker elected after that date, the employers

minimum contribution is fixed at only RM5. Thus, to a migrant worker, the EPF scheme is solely a forced savings. Further, unlike that for a Malaysian, the funds can only be withdrawn upon death, in the event of mental or physical incapacitation, or upon return to homeland. Table 4: Summary of Abuses Towards Foreign Workers
No. 1 2 3 Abuses and Restrictions - cheaper option Absence of employment contracts or contracts that are not honoured given that the terms and conditions become less favourable as that which was agreed upon before their departure from their homeland. Outsourcing system that denies workers the benefits of collective bargaining agreements given that the terms are agreed upon between recruitment agents and employers. Discouraged to join unions by unscrupulous employers (violation of the Trade Union Act, 1959). In practical terms, the Ministry of Home Affairs has set an absolute prohibition on migrant workers from joining any sort of association. Discouraged to contribute to the EPF as the employer merely contributes RM5 per worker instead of the rate applicable for a local worker. Further, a foreign worker is not allowed to make a nomination under the Employees Provident Fund Act 1991. Inferior benefits accorded under the Workmen's Compensation Act 1952 that is applicable to foreign workers relative to the protection of local workers under the SOCSO scheme. Non-payment of wages and unfair dismissal. Wrongful deduction of wages to cover the cost of the work permits (though it has been mandated in April 2009 that employers have to bear the cost). Substandard living conditions and lack of workplace protection against industrial injuries. Workers not insured (violation of the Workmens Compensation Act 1952) and insurance compensation not meted out in the case of occupational injuries. Other Abuses Employers that do not renew their permits, leaving migrants to lose their legal status. Passports withheld by employers and recruiting agents leaves them vulnerable to arrest, ill-treatment and extortion by police (violation of the Passport Act 1964). Loss of status as documented workers when their rights are violated and are waiting for their matters to be resolved by the Labour Department or Industrial Relations Department (or even the Labour Court). At present, a 3-month special pass is issued by the Immigration Department at RM100 per month which forbids them to work. Some outsourcing companies recruit, transport and receive workers through fraud and deception (e.g.: jobs that do not exist; different economic sectors; different destination of work) mainly to exploit them, resulting in migrant workers becoming victims of trafficking in persons (violation of the Anti Trafficking in Persons Act 2007). The Malaysian border police and immigration authorities are said to be directly involved in trafficking.

5 6 7 8 9 No. 10 11 12


Source: Compiled from press releases.

Greater disparities in the treatment of migrants under labour regulations are in fact clearly noted in the event that the worker sustains injuries in industrial accidents 8 at the workplace. First, the Workmens Compensation Act (that covers migrant workers) provides benefits which are inferior to that as provided by the SOCSO scheme to local workers. For example, the injured local worker is entitled to free treatment at a SOCSO panel clinic or at any government hospital or clinic, and the medical bill is settled by the SOCSO. Under the scheme for migrant workers instead, the employer is required to pay for the workers medical and rehabilitation expenses. This may be open to abuse as the employer may not provide the injured worker with proper medical treatment. Further, the employer may not settle the medical bills. This problem is real, for there is currently an amount of RM18 million of public hospital bills incurred and not settled by employers (The Star, 25 November 2010). Second, the local injured worker who has been certified by a doctor to be unfit f or work for at least 4 days is entitled to temporary disablement benefit equivalent to 80 percent of his daily wage subject to a minimum of RM10 and a maximum of RM78.67 per day. On the contrary, the foreign worker who suffers temporary disablement is entitled to

a half-monthly payment of 1/3 of his monthly wages or RM165, whichever is lower, during his disablement. He is entitled to receive this amount for a maximum period of 5 years. Comparatively, the maximum amount of compensation payable to a migrant worker who suffers temporary disablement (RM165 for half month) is slightly higher than the minimum entitlement of a local injured worker (RM10 per day).Third, if a local worker suffers permanent total disability, he is entitled to 90 percent of his daily wages, subject to a minimum of RM10 and a maximum of RM88.50. If a migrant worker becomes permanently disabled, his compensation is capped at RM23,000, varying with the age9 of the worker. Apart from the observed differences in the compensation for migrant vis--vis local workers, the SOCSO also covers a local worker who is employed in any of the industries covered by the Act. It is immaterial if the local worker is not registered with the SOCSO at the time of the accident or is registered but failed to contribute, as SOCSO will still pay the compensation due to the injured worker. Comparatively, though the Workmens Compensation Act provides that an injured migrant worker can claim compensation from his employer, to ensure that the injured worker is duly paid, the employer is required to insure his liabilities under the Act. Thus, the injured migrant worker may not receive any compensation if there is no valid insurance. Unlike the SOCSO scheme, there is basically no assurance that the injured migrant worker is compensated for his/her injuries under the Workmens Compensation Act. The provisions under the governing acts, as discussed above, are discriminative against migrants. A recent announcement by the Malaysian government requiring employers to buy health insurance coverage for migrant workers effective 1 January 2011 (The Star, 25 November 2010) looks somewhat positive at the outset. This mandate, though ostensibly benefits migrant workers, is implemented mainly because of the high amount of unsettled public hospital bills as mentioned above. It is therefore not surprising to note that the compulsory insurance coverage was announced, not by the Human Resource Minister, but by the Health Minister. The government appears more concerned with the unpaid bills, instead of the welfare of the migrant workers. To date, the details of the health insurance, apart from the annual premium of RM120, have not been made known to the public. From the abusive practices related to terms and conditions of work and the observed differences in the provisions outlined under the specific labour laws, it is clear that basic rights and equal treatment and equal labour standards remain a far cry for migrants in the Malaysian context.

5. Policy Challenges Ahead

The Malaysian case is a classic case on the failure of decentralization in the recruitment and placement of migrant workers, further to lack of enforcement of existing regulations by various stakeholders. In this respect, the government has also to step up other monitoring procedures in managing migrant workers beyond recruitment to more importantly the workplace of migrants to ensure that employers meet their statutory obligations. For example, though Malaysia is a party to the Labour Inspection Convention, inspections in the manufacturing sector are noted to have declined by 45 percent from 2006 to 2007 and by 78 percent from 2007 to 2008 (Amnesty International 2010). Regular inspection is needed to ensure that the

welfare of migrant workers is taken care of by their prospective employers. Particularly, these inspections are needed to ensure that the terms and conditions of work (pay, working hours, off-days) are honoured by employers and their safety and health conditions are preserved at the workplace. Further, several regulations and labour laws need to be tightened to avoid the abuses by errant police and immigration officials, outsourcing companies and employers. Some of which are already announced but yet to be implemented, whilst others are under consideration. The following addresses three main policy contexts for regulating migrant inflows through the price (labour cost encompassing wages, non-wages and other intangible benefits) effect. Some of the provisions outlined in the specified Acts/ Regulations that are applicable to migrants need to be reviewed to ensure equal protection for the former with that of their local counterparts. Of importance is the compensations meted out under the Workmens Compensation Act 1952. The compensation packages, offered to foreigners in the event of occupational/ workplace injuries and disabilities that follow, need to be revised upwards as the payment is much too low in comparison with the SOCSO plan for local workers. In addition to the inadequate or precarious access to social security benefits, problems such as low wages, unlawful deduction of wages, long working hours, poor accommodation also need to be dealt with. Equal treatment of migrants with that of local workers will tax away any undesirable cost saving gains borne by employers. Apart from equal treatment that affects the pricing element of migrant workers, the levy system is also a crucial factor. At this point, the government is studying a proposal to increase the levy for migrant workers under the 10th Malaysia Plan (World Bank 2010), with differing rates across skills and sectors. Should the levy be increased, it will be enforced early 2011. The current annual levy system suffers from several shortcomings. In the case of manufacturing, an annual levy of RM1200 and RM960 (based on the latest revision in August 2005) is imposed on a migrant worker in Peninsular and East Malaysia respectively. A blanket levy for manufacturing is not feasible given that the dependency on migrant workers vary considerably across industries. The levy on migrant workers should be lower for industries within manufacturing that face critical labour shortages, to avoid the imposition of unfair adjustments costs across industries. The new levy structure should therefore be designed based on differential industrial levies and according to workers skill levels. The final policy issue also under consideration is minimum wages. The Malaysian Trade Union Congress (MTUC) has been pressurizing the government to introduce a minimum wage 10 of RM900 plus cost of living allowance of RM300 to attract local workers and reduce the dependence on migrant workers. The minimum wage (covering all workers including migrants) campaign, was initially started by the MTUC in 1996 11 , followed by nationwide pickets in 2007, and has recently since 2008 gained further attention, when the government gave indications that the proposal would be considered (The Star, 17 May 2008). The key challenge is to identify the appropriate rate for minimum wages as the proposed rate matches up to a basic wage of a semi skilled worker in Malaysia, lest displacement of jobs may post a greater problem as higher wages relative to neighbouring countries attract more

migrant inflows. The argument that a minimum wage will reduce the dependency on migrant workers is thus debatable and can somewhat be counterproductive given that: First, migrant workers may increase instead of decrease unless transaction costs (such as work permits and levies are increased sufficiently to render them unattractive); Second, local workers may still not be willing to undertake 3-D (dirty, difficult and dangerous) jobs, and even if they do, workers productivity with minimum wages becomes another concern; Third, the problem of non-compliance and abuse by the various stakeholders which has plagued in-migration in Malaysia to date may worsen as unscrupulous employers resort to illegal workers to undercut cost of competitors. To date, employers in the manufacturing sector remain divided on their views on this policy (The Star, 26 April 2010) and the proposal is being understudied by the Ministry of Human Resources. Amidst the above challenges that prevail, the immediate focus on any policy action, clearly, should be on the various stakeholders of in-migration instead of on the migrants per se. With proper enforcement and regular inspection for example, the policymakers can, at the very least, ensure that migrant workers are accorded equal treatment (at least in terms of wages and working conditions) as that for local workers and therefore do not become a desirable option for employers. More importantly, policymakers should also recognize that with appropriate migration policies and effective management, migrant workers are an economic asset instead of a liability (Dadush and Falcao 2009). In short, underlying all of this is the role of migrant workers in the various sectors of the Malaysian economy that needs to be critically redefined, and their contribution to economic welfare broadly understood, to maximize the benefits of temporary migration.


Amarjit, K. 2010. Labour migration in Southeast Asia: migration policies, labour exploitation and regulation, Journal of the Asia Pacific Economy, Vol.15, No.1, pp.6-19. Amarjit, K. 2007. Migration matters in the Asia-Pacific region: immigration frameworks, knowledge workers and national policies, International Journal on Multicultural Societies, Vol.9, No.2, pp.135-157. Amarjit, K. 2004. Mobility, labour mobilization and border controls: Indonesian labour migration to Malaysia since 1900, accessed from: Amnesty International 2010. Trapped: The Exploitation of Migration Workers in Malaysia, Amnesty International, London. Asian Migrant Centre 2004. Asian Migrant Yearbook 2004, Asian Migrant Centre, Hong Kong. Athukorala, P. 2006. International labour migration in East Asia: trends, patterns and policy issues, Asian Pacific Economic Literature, Vol.20, No.1, pp.1839. Athukorala, P. and Manning, C. 1999. Structural Change and International Migration in East Asia, Oxford University Press, Victoria. Azizah, K. 2005. Cross-border movement of foreign workers in Malaysia: a comparative analysis, Master Builders, 3rd Quarter, pp.78-91. Bank Negara Malaysia (BNM) 2010. Annual Report 2009, Bank Negara Malaysia, Kuala Lumpur. Chin, C.B.N. 2002. The host state and the guest worker in Malaysia: public management of migrant labour in times of economic prosperity and crisis, in Yaw. A.D. (ed.), Migrant Workers in Pacific Asia, Frank Cass Publishers, London, pp.1940. Dadush, U. and Falcao, L. 2009. Migrants and the global financial crisis, Policy Brief No.83, Carnegie Endowment for International Peace, Washington DC. Gurowitz, A.I. 1999. Mobilizing international norms: domestic actors, immigrants and the state (Germany, Japan, Canada, Malaysia), unpublished PhD thesis, Cornell University, New York. Gurowitz, A.I. 2000. Migrant rights and activism in Malaysia: opportunities and constraints, Journal of Asian Studies, Vol.59, No.4, pp.863-888. Horton, S. and Mazumdar, D. 2001. Vulnerable groups and the labor market: the aftermath of the Asian financial crisis, in G. Betcherman and R. Islam (eds.), East Asian Labor Market and the Economic Crisis: Impacts, Responses and Lesson World Bank, Washington DC, pp.379-422. Idris, J. and Rahmah, I. 2006. Elasticity of substitution between foreign and local workers in the Malaysian manufacturing sector, Pertanika Journal of Social Science and Humanities, Vol.14, No.1, pp.63-76. International Trade Union Confederation (ITUC) 2010. Internationally recognized core labour standards in Malaysia, report for the WTO General Council Review of the Trade Policies of Malaysia, Geneva, January 18-20. Kanapathy, V. 2004. International migration and labour market developments in Asia: economic recovery, the labour market and migrant workers in Malaysia, paper presented at the 2004 Workshop on International Migration and Labour Markets in Asia, Tokyo, Japan, February 5-6.

Kanapathy, V. 2006. Migrant workers in Malaysia: an overview, paper presented at the Workshop on an East Asian Cooperation Framework for Migrant Labour, Kuala Lumpur, Malaysia, December 6-7. Lee, M. 2010. The factor market consequences of migrant workers in Malaysia: A production approach paper presented at the Trade and Development Seminar, Australian National University, Canberra, July 30. Mehmet, O. 1986. Development in Malaysia: Poverty, Wealth and Trusteeship Croom Helm, London. Ministry of Finance (MOF) 2010. Economic Report 2009/2010, Government Printers, Kuala Lumpur. National Economic Advisory Council (NEAC) 2010. New Economic Model for Malaysia, National Printers of Malaysia Ltd., Kuala Lumpur. Pillai, P. 1995. Malaysia, ASEAN Economic Bulletin, Vol.12, No.2, pp. 221236. Prasai, S.B. 1993. Intra-Asian labor migration: redefining the implications, Asian Survey, Vol.33, No.11, pp.1055-1070. Ruppert, E. 1999. Managing foreign labor in Singapore and Malaysia: are there lessons for GCC Countries? World Bank Working Paper Series No. 2053, World Bank, Washington DC. Shamsulbahriah, K.A. 1998. The constant flux, the mobile reserve and the limits of control: Malaysia and the legal dimensions of international migration, in R. Iredale, C. Hawksley and S. Castles (eds.), Migration in the Asia Pacific: Population, Settlement and Citizenship Issues, Edward Elgar, Londond, pp.141-158. Shamsulbahriah, K.A. 2003. Malaysia after the Asian Crisis: an overview of labour market issues, in C. Barlow and F.L.K. Wah (eds.), Malaysian Economics and Politics in the New Century, Edward Elgar, Cheltenham, pp.46-61. World Bank 2009. Malaysia Economic Monitor: Repositioning for Growth, World Bank, Washington DC. World Bank 2010. Malaysia Economic Monitor: Inclusive Growth, World Bank, Washington DC. Yaw, A.D. 2002. Introduction: migrant workers in Pacific Asia, in A.D. Yaw (ed.), Migrant Workers in Pacific Asia, Frank Cass Publishers, London, pp.1-18.

It should be borne in mind at this stage that illegal (undocumented or irregular anyone who does not hold a proper travel document or valid visa to work in the country, including refugees, asylum seekers and trafficked persons) migrants constitute an important part of the migration stream, comprising approximately 40 per cen t of the total number of migrant workers in Malaysia. 2 In general, the legislation mandates the temporary nature of migrant workers which bars their mobility, confining them to certain occupations and certain sectors. 3 Their willingness to work overtime specifically provides management flexibility, as needed by most employers in modern manufacturing. 4 Unskilled migrants are issued temporary work permits (based on the 1968 Employment Restriction Act) as they are imported for a short duration on a contract basis to address labour market imbalances in specific sectors. These work permits are renewed annually though the employment agreements are normally three years. However, contract workers are not given the same provisions as that for expatriates, such as to stay on upon completion of their tenure and to be accompanied by their respective family members (dependents) while working in Malaysia. 5 As recent as April 2010, industry players in the Northern and Southern territory of Peninsular Malaysia have claimed that worker shortages are hurting their industry. 6 In fact, tighter enforcement has encouraged many to stay back and become perpetually permanent illegals (Azizah 2005; Amarjit 2010).


The Employment Act covers a person who is employed to do manual labour (semi-skilled or unskilled worker). It does not differentiate between the nationalities of the workers. Migrant workers, who come under this act, are supposed to be accorded similar rights in wages, leave, working hours and layoff notice as that of locals. 8 There are two schemes established by legislation in Malaysia to protect an injured worker and his dependant. They are the SOCSO scheme under the Employees Social Security Act 1969; and the compulsory insurance scheme under the Workmens Compensation Act 1952. With effect from 1 September 1993, the SOCSO scheme only covers local workers whilst migrant workers are covered under the Workmens Compensation Act 1952. The maximum amount of contribution by the employer for each of its local worker under the SOCSO scheme is RM 51.65 per month, whereas the employer pays a premium of only RM72.00 per annum towards the insurance policy covering each migrant worker. Needless to mention, the lower premium is translated into lower benefits to the injured migrant worker. 9 If the migrant worker has reached 18 years of age, he/she will receive a lump sum of 60 months wages. For a worker who is between 16 and 18 years old, his entitlement is 84 months wages and for a worker who is below 16 years old, his entitlement is 108 months wages. 10 The Wage Council Act of 1947 authorizes the Ministry of Human Resource to gazette minimum wages for jobs where it is deemed appropriate. 11 The proposal was rejected in 1997 by the government on grounds that it would have adverse consequences on industrialization.