1. business and industrial
2. manufacturing

Foreign Workers in Malaysia:
Assessment of their Economic Effects and Review of the Policy
The World Bank, EASHS
KNOMAD Seminar Series
June 13th, 2013
The World Bank, East Asia Pacific Region,
Human Development Dept. Social Protection & Labor Unit
Objective
This study aims to help MOHR to better…
Manage existing human resources in the
country.
• Plan for the development of future human
capital needs.
•
Two Interlinked Components
I. Human Resource Management
1.
2.
3.
4.
5.
Identify skills mismatches/gaps, and suboptimal amount of training.
Evaluate three key policies in the skills domain: soft skills and English language.
Assess skill forming policies, benchmarking and learning from international
practices.
Future human resource requirements: Micro-simulation results.
Way forward to better manage human resources.
II. Immigration Management
1.
2.
3.
4.
3
Characterize labor migration in Malaysia over time, sectors and states.
Identify economic and social impact of foreign workers in the economy.
Assess current policy compared to international systems.
Way forward to better manage immigration.
The World Bank, East Asia Pacific Region,
Human Development Dept. Social Protection & Labor Unit
Road map
1.
What are the potential concerns over the employment of foreign workers?
2.
Foreign workers and Malaysia:
3.
4.
5.
•
Determinants of employment of foreign workers in Malaysia
•
Profile of foreign workers in Malaysia
Economic Impact of Foreign Workers on:
•
Labor markets
•
Firm-sub-sector productivity
Potential effects of policy changes:
•
Macroeconomic Impacts
•
Sub-sector growth and employment
Foreign Workers Management:
•
6.
Conclusion:
•
4
Current Policies and comparable Systems
Key Messages
The World Bank, East Asia Pacific Region,
Human Development Dept. Social Protection & Labor Unit
Potential Concerns over the Employment of Foreign Workers
1.
2.
3.
4.
5
Do foreign workers hurt Malaysian workers in terms of employment and wages?
•
Wage and employment impact on local workers
•
Impact on skill acquisition and education incentives
•
Impact on female labor force participation
Do foreign workers hamper productivity increase and technological advances?
•
Substitution of unskilled labor for technology
•
Sectoral diversification of the economy
How will further restrictions on employment of foreign workers impact the economy?
•
Macroeconomic effects - growth, investment, unemployment
•
Growth across sectors
•
Wage and employment effect across educational categories
What are the social costs and benefits of employing foreign workers?
•
Crime and social costs
•
Impact on demographic patterns and fertility
The World Bank, East Asia Pacific Region,
Human Development Dept. Social Protection & Labor Unit
Value added of this report
This report adds to the foreign management Lab and previous analyses in four ways:
1.
It uses economic tools to measure the impact of the employment of foreign workers
on Malaysian workers and on productivity of firms in key economic sectors.
2.
It uses simulation analysis to estimate potential changes to key policies, i.e. “levy
regime.”
3.
It undertakes an in-depth view of the Malaysian foreign workers management system
and benchmarks it against a group of relevant countries, including Australia, Canada,
Korea, Singapore, Taiwan, Thailand, and the United States.
4.
It brings together the lessons from the economic analysis, simulations, and the
institutional analysis to make evidence-based recommendations.
6
The World Bank, East Asia Pacific Region,
Human Development Dept. Social Protection & Labor Unit
FOREIGN WORKERS AND MALAYSIA
MAIN DETERMINANTS
The World Bank, East Asia Pacific Region,
Human Development Dept. Social Protection & Labor Unit
Education levels in Malaysia improved drastically over the last 20 years
One of the most remarkable features
of the Malaysian experience has been
the advances achieved in education
levels of the labor force over a very
short period.
Education distribution of Malaysian
workers
100%
80%
60%
The share of Malaysians with (at most)
primary school education declined
from 61% in 1990 to 26% in 2010
40%
20%
The share of secondary educated (at
most) increased from 34% to 56%.
The share of college educated
increased from 5% to 18% in the same
period.
0%
Not applicable
Upper Secondary
Degree
No formal/Primary
Post secondary
Note: The analysis is focuses on the working age population (15 to 64 years of age)
8
Lower Secondary
Diploma/Certificate
Education levels of younger workers improved even faster
The increase in the education levels of
the new entrants to the labor market 25-35 age group - has been even more
remarkable.
Education distribution of Malaysian workers
(25-35)
100%
80%
In 1990, over 50% of young workers
had primary education (at most), 40%
had secondary education and less than
10% had tertiary education.
In 2010, around 10% had primary, over
60% had secondary and close to 30%
had tertiary education.
The remarkable expansion of formal
education and human capital levels
led to changes in job preferences of
many Malaysians.
9
60%
40%
20%
0%
Not applicable
Upper Secondary
Degree
No formal/Primary
Post secondary
Lower Secondary
Diploma/Certificate
Labor Market conditions have been quite tight
Unemployment rates have always been quite low. This is partly due to rapid growth as
well as relatively low labor force participation levels by women.
The inflow of foreign workers is largely attributable to demand factors in the domestic
labor market.
Labor Force Participation
14,000
Labor Market Composition
100%
12,000
80%
10,000
8,000
60%
6,000
40%
4,000
2,000
20%
10
Female natives
Total employed
Total Unemployed
2011
2010
2005
2000
1995
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1993
1992
1990
Male Natives
1990
0
0%
The economy heavily relies on export-oriented manufacturing and
domestic service sectors
Agriculture
Mining
Mfg food-bev-tob
Mfg textile
Mfg wood
Mfg paper-furn
Mfg chem-rub
Metal-machinery-equ
Mfg meas-med-com
Mfg transp equip
Utilities
Construction
Wholesale-retail
Accommodation and resturant
Logistics
Post and telecom
Finance
Real estate
Business services
Education
Health
Other services
Public administration
Distribution of labor force by economic sector
2010
1990
0%
20%
40%
60%
80%
100%
The employment of foreign workers is a demand driven phenomenon
Over the last two decades, Malaysian labor markets experienced …
* Rapid increases in human capital and education levels
* Low unemployment and labor force participation
* Increased diversification across sectors
* Continued importance of several export and domestic service sectors
The large inflow of foreign workers is largely attributable to …
* Demand factors in the domestic labor market in labor intensive sectors
* Relative shortage of unskilled workers
* Remarkable economic success of Malaysia relative to neighboring countries
12
FOREIGN WORKERS AND MALAYSIA
PROFILE OF FOREIGN WORKERS
The World Bank, East Asia Pacific Region,
Human Development Dept. Social Protection & Labor Unit
Labor Force data account for about 2+ million foreign workers in Malaysia
Foreign Workers in Malaysia, 1990-2010
2,500,000
1,500,000
1,000,000
Total (adj.)
14
Female (adj.)
Male (adj.)
2010
2009
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
0
1993
500,000
1992
Due to large number of
unregistered undocumented
workers, it is difficult to get a
more precise estimate.
2,000,000
1990
Inflows of foreign workers
have steadily increased since
the early 1990s, when the
government introduced
formal guidelines on foreign
workforce management.
Foreign workers compose around 10% of the labor force
Estates/group housing are excluded from labor force survey.
Other estimates show the total at 18% (NER,2009) and 20% (MOF, 2009).
Foreign Workers as share of the Labor Force
12.00
10.00
8.00
6.00
4.00
2.00
0.00
15
% labor force
(adj.)
% 15+ (adj.)
Indonesia is the main sending country and Sabah the main recipient state
Nearly two-thirds of foreign
workers in Malaysia are in
three states – Sabah, Selangor
and Johor.
Rest
Bangladesh
Thailand
Other SE
Asia
Johor
Philippines
Indonesia
Sabah
Kedah
Kelantan
Melaka
Negeri
Sembilan
Pahang
Singapore
Pulau
Pinang
Almost two-thirds of the foreign
workers come from Indonesia. The
next largest group are from the
Philippines (13%).
WP Labuan
WP Kuala
Lumpur Terenggan
u
Perak
Selangor
Perlis
Foreign labor continues to be largely concentrated in physically demanding
sectors of the economy such as agriculture and construction
201
0
200
0
199
0
0%
17
20%
Agriculture
Wholesale-retail
Mfg meas-med-com
Metal-machinery-equ
Mfg transp equip
Health
Mining
Post and telecom
40%
60%
Construction
Accommodation and resturant
Business services
Mfg chem-rub
Mfg paper-furn
Education
Real estate
Finance
80%
Other services
Mfg wood
Mfg food-bev-tob
Logistics
Mfg textile
Public administration
Utilities
100%
Foreign workers make up the largest share of the labor force in wood products,
other services and agriculture sectors
Finance
Public administration
Education
Post and telecom
Health
Utilities
Real estate
Logistics
Wholesale-retail
Business services
Mfg textile
Mfg paper-furn
Mining
Mfg meas-med-com
Metal-machinery-equ
Accommodation and resturant
Mfg chem-rub
Mfg food-bev-tob
Mfg transp equip
Construction
Agriculture
Other services
Mfg wood
2010
0
18
5
10
15
20
25
30
35
2000
40
1990
45
50
Foreign workers are significantly less educated than Malaysians...
Their educational distributions that have been more stable over time. This
pattern is simply due to demand factors in the Malaysian labor market.
No formal/Primary
Lower Secondary
Not applicable
No formal/Primary
Lower Secondary
Upper Secondary
Post secondary
Diploma/Certificate
Upper Secondary
Post secondary
Diploma/Certificate
Degree
2010
2009
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1993
2010
2009
2007
2006
2005
2004
Not applicable
Degree
19
2003
0%
2002
0%
2001
20%
2000
20%
1999
40%
1998
40%
1997
60%
1996
60%
1995
80%
1993
80%
1992
100%
1990
100%
1992
Education distribution of foreign workers
1990
Education distribution of Malaysian workers
Labor intensive economic sectors rely on foreign rather than Malaysian labor
Even when employed in capital intensive sectors, foreign workers hold low skill occupations.
Education Levels by Economic Sectors, 2010
Malaysian workers
Foreign workers
Public administration
Public administration
Other services
Other services
Health
Health
Education
Education
Business services
Business services
Real estate
Real estate
Finance
Finance
Post and telecom
Post and telecom
Logistics
Logistics
Accommodation and resturant
Accommodation and…
Wholesale-retail
Wholesale-retail
Construction
Construction
Utilities
Utilities
Mfg transp equip
Mfg transp equip
Mfg meas-med-com
Mfg meas-med-com
Metal-machinery-equ
Metal-machinery-equ
Mfg chem-rub
Mfg chem-rub
Mfg paper-furn
Mfg paper-furn
Mfg wood
Mfg wood
Mfg textile
Mfg textile
Mfg food-bev-tob
Mfg food-bev-tob
Mining
Mining
Agriculture
Agriculture
0%
20
50%
100%
0%
Not applicable
Secondary
50%
100%
Primary/No formal
Tertiary
ECONOMIC IMPACT
LABOR MARKETS
The World Bank, East Asia Pacific Region,
Human Development Dept. Social Protection & Labor Unit
Which way does the causality between economic performance and foreign labor go?
FACT:
We tend to find higher numbers of foreign workers in rapidly growing
industries and regions across the world.
QUESTION:
Do foreign workers contribute to economic growth or are they
simply attracted to booming areas?
ECONOMIC
GROWTH
FOREIGN
WORKERS
Pull vs. Push Factors
Pull factors in the destination countries and push factors in the origin countries
jointly determine the inflows of foreign workers.
These two effects need to be separated to identify the effect of foreign labor on
economic outcomes in destination countries.
Using demographic data from the main origin countries and historical migration
patterns by sector and state, our econometric methodology is able to identify the
causal effect of foreign labor on the labor market outcomes in Malaysia.
Employment of foreign workers leads to job creation for Malaysian workers
601 new full-time jobs (of which 67 are parttime) are created for Malaysian workers in a
given sector in a state as a result of the
entry of 1000 new foreign workers. This is
mainly a reallocation effect
400
350
300
250
200
700
150
600
100
500
50
400
0
Male
300
Total Employment
200
Male
Female
Part-Time Employment
The effect on men and women seems
to vary significantly, especially in
terms of total employment.
100
0
Total Employment
24
Female
Part-Time
Employment
Effects are heterogeneous across age groups and sectors
Small effect on young workers, while
much larger positive effect on other
age groups.
600
500
400
300
300
250
200
200
100
150
0
Agriculture & Manufaturing
Mining
100
The employment of foreign workers
leads to increased employment of
Malaysians in every major sector.
50
0
15-19
25
Services
20-29
30-44
45+
Effects Also Differ Across Education Categories
Low educated/unskilled workers are hurt, while the impact on tertiary educated are
much smaller. The main beneficiaries are Medium Skilled/Educated Workers.
Degree and above
Certificate/Diploma
Post-Secondaty (STPM)
Upper Secondary (SPM)
Lower Secondary (PMR)
No formal/Primary
-400
26
-300
-200
-100
0
100
200
300
400
Impact on Wages of Malaysian Workers
Changes in employment due to increases in employment of foreign workers (for a given region and
sector) do not lead to significant changes in the wages of Malaysian workers, mainly due to tightness
of labor markets
Personal characteristics (age, gender, education) play a role on how much Malaysians can benefit in
terms of higher wages.
Overall
Female
Male
45+
30-44
20-29
15-19
Degree +
Certificate / Diploma
Post-Secondary (STPM)
Upper Secondary (SPM)
Lower Secondary (PMR)
No Formal / Primary
-0.06
27
-0.04
-0.02
0.00
0.02
0.04
0.06
0.08
0.10
When Additional Foreign Workers enter the Malaysian Labor Market…
• The main effect is re-allocation from other sectors and regions. Entry of
foreign workers into a sector leads to further expansion by employment of
additional Malaysian workers.
• There is no contraction in national employment levels of Malaysians workers
• Malaysian workers’ wages increase by a small amount.
• Existing foreign workers’ wages decline considerably.
28
ECONOMIC IMPACT
FIRMS & PRODUCTIVITY
The World Bank, East Asia Pacific Region,
Human Development Dept. Social Protection & Labor Unit
Establishment census data covers formally registered firms
% of Establishments
80.0%
% of Labor force
Manufacturing
Agriculture
60.0%
80.0%
40.0%
60.0%
40.0%
20.0%
20.0%
0.0%
Micro
Small
Medium
Large
0.0%
Micro
80%
Small
Medium
Large
Accommodation
60%
40%
20%
ICT
Construction
0%
80.0%
Micro
Medium
80.0%
Large
60.0%
60.0%
40.0%
40.0%
20.0%
20.0%
0.0%
0.0%
Micro
30
Small
Small
Medium
Large
Micro
Small
Medium
Large
It is the large firms that employ the largest share of foreign workers
Establishments With/Without Foreign Workers in Manufacturing
17,168
Without migrants
With migrants
11,632
4,767
2,435
1,006
415
Micro
31
Small
Medium
1,883
363
Large
In all sectors (except agriculture) value added per workers is higher in establishments
that employ foreign workers
Average Value added per worker by Workforce Composition and Sector, 2010
400000
300000
200000
100000
0
Agriculture
Manufacturing
Construction
Without migrants
32
Accommodation
With migrants
ICT
Again, the causality between productivity and foreign labor is critical
FACT:
We tend to find foreign workers in large firms and in firms with
higher value added .
QUESTION:
Do foreign workers contribute to higher productivity or larger/more
productive firms hire foreign workers?
FIRM
PRODUCTIVITY
FOREIGN
LABOR
The impact of foreign labor on productivity varies by sector…
Overall positive impacts on medium and large firms (50+ workers) in manufacturing
and construction. For plantations, Accommodation and ICT services results are not
conclusive.
8.0%
6.0%
For ICT and
Accommodation the
analysis is conducted for
firms with 5+ workers due
to data availability
4.0%
2.0%
34
Plantation (50+)
Construction (50+)
-6.0%
Accommodation (5+)
-4.0%
ICT (5+)
-2.0%
Manufacturing (50+)
0.0%
…and by firm size
For smaller firms (20 to 50 workers) the results are very different.
0%
-2%
-4%
-6%
-8%
-10%
-12%
-14%
-16%
-18%
-20%
35
Manufacturing
50)
(20 to
Plantation (20 to 50)
Construction (20 to 50)
Impact of foreign labor within manufacturing (50+ workers)
Within the manufacturing sector, the effect is significant in all subsectors except on
Food-beverages-tobacco and Textile.
The effect is negative in Chemicals/rubber, precision and communication instruments
and transportation equipment. It is positive in wood, paper/furniture,
metal/machinery equipment and transportation equipment.
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
36
Effects are Heterogeneous Across Industries and Firms
• In general, the effect on productivity is positive, especially in
manufacturing and construction.
• The main beneficiaries are large firms. Foreign workers impact
productivity of small firms, especially in plantation and construction
negatively ..
• Within manufacturing firms, capital intensive sectors are hurt but they do
not employ large number of foreign workers anyway.
SOCIAL IMPACT
CRIME
The World Bank, East Asia Pacific Region,
Human Development Dept. Social Protection & Labor Unit
Crime rates for immigrants are lower than for Malaysians (except murder)
Average Crime Rates of Malaysians and Foreigners, 2003-2010
0.7%
0.6%
0.5%
0.4%
0.3%
0.2%
0.0%
-0.1%
Violent Property Murder
Total
Rape
Robbery
Malaysians
Body
Injury
House Vehicles Other
breaking Thefts Property
thefts
Foreigners
Source: Author’s calculations with Data from the Royal Malaysian Police
39
Does immigration lead to higher rates of crime?
FACT:
Increasing sentiment that the presence of foreign workers is
associated with higher rates of crime.
QUESTION:
Do foreign workers increase the propensity to commit crime or
do regions with high crime rates employ more migrants ?
CRIME
FOREIGN
WORKERS
Figure 44. Crime Rates of Malaysians and Foreigners
Does immigration lead to higher rates of crime?
Using the same econometric technique as in the previous sections, we find that
changes in the supply of immigrants to a state result in a fall in the number of crimes
committed in a state.
Impact of Immigration on Crime (for every 100,000 immigrants)
0.0%
-0.5%
-1.0%
Violent Property Murder
Rape
Robbery
Body
Injury
House Vehicles Other
breaking Thefts Property
thefts
% of crime
-1.5%
-2.0%
The effect on
crime rate is
even more
pronounced.
-2.5%
-3.0%
-3.5%
-4.0%
-4.5%
-5.0%
41
Source: Author’s calculations with Data from the Royal Malaysian Police
Making sense of these results….
Potential channels of transmission from immigration to crime
• Economic activity (unemployment, wages, sectoral growth,
etc…)
• Different opportunity costs of crime for immigrants and locals
• Social tensions
The report demonstrates that immigration increases
economic activity from which Malaysian workers benefit.
This in turn is likely to decrease criminal activity.
42
POTENTIAL EFFECTS OF POLICY
CHANGES
MACROECONOMIC IMPACT
The World Bank, East Asia Pacific Region,
Human Development Dept. Social Protection & Labor Unit
Macroeconomic impacts
Goals of the Computable General Equilibrium (CGE) Model
•Detailed
model of production with 23 sectors and 21 separate
skill categories to capture a wide range of policy options.
•Allows us to simulate different levy scenarios – as well as from
whom they are collected.
•Identify the effect on macroeconomic variables – growth,
investment
•Identify the effect on wages and unemployment of Malaysian
workers in different sectors and different skill levels.
•Identify the effect of minimum wage policies on these variables.
44
The Model Has 23 sectors
Sectoral Growth Rates 2005-2010
1 AGRICULTURE
2 MINIG
MANUFACTURING
3 Mfg food-beverage-tobacco
4 Mfg textile
5 Mfg wood
6 Mfg paper-furniture
7 Mfg chemical-rub
8 Metal-machinery-equip
9 Mfg measurement-med-com
10 Mfg transport equip
11 UTILITIES
12 CONSTRUCTION
SERVICES
13 Wholesale-retail
14 Accommodation and restaurants
15 Logistics
16 Post and telecom
17 Finance
18 Real estate
19 Business services
20 Education
21 Health
22 Other services
23 Public administration
45
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15 16 17 18 19 20 21 22 23
-0.1
-0.2
Model Macro
CGE
The Model Has 21 Educational Categories Tracked Over Time
Skill Levels
Lower Skill - Secondary or less
1 No schooling
2 UPSR/UPSA equivalent
3 PMR or equivalent
4 SPM or equivalent
5 STPM or equivalent
Medium Skill -Certificate/Diploma
6 Arts & Humanities
7 Social science, business, law
8 Science, math, IT
9 Engineering
10 Agriculture
11 Health
12 Services
13 Education
Higher Skill -University Degree
14 Arts & Humanities
15 Social science, business, law
16 Science, math, IT
17 Engineering
18 Agriculture
19 Health
20 Services
21 Education
Evolution of Labor Supply by Skill Level
1.5
1
0.5
0
1
-0.5
46
Simulated vs. Actual - 2005-2010
2
2
3
4
5
6
7
8
9
10
11
LFS
12
13
14
CGE
15
16
17
18
19
20
21
Once Levy Costs are Adjusted, Legal International Immigration is expected to fall
International Immigration
Employers Pay for the Levy
International Immigration
Workers Pay for the Levy
1.3
1.3
1.2
47
1.1
Millions
Millions
1.2
1
1.1
1
0.9
0.9
0.8
0.8
Reference
20% Levy Increase
50% Levy Increase
100% Levy Increase
The Impact on GDP Growth is Marginal in all the scenarios, irrespective of whom
pays the levy
Evolution of GDP Growth Rate
5.30%
5.20%
5.10%
5.00%
Reference
4.90%
4.80%
Employer pays: 50% Levy
Increase
4.70%
Foreign worker pays:
50% Levy Increase
4.60%
4.50%
4.40%
48
The Impact of a Levy Increase is Marginal in Most Economic Sub-Sectors
a-Public administration
a-Health
a-Business services
a-Finance
a-Logistics
a-Wholesale-retail
a-Utilities
a-Mfg meas-med-com
a-Mfg chem-rub
a-Mfg wood
a-Mfg food-bev-tob
a-Agriculture
-0.001
-0.0005
0
0.0005
Employee pays 50% Levy
49
0.001
0.0015
Employer pays 50% Levy
0.002
Wages of Medium-skill Workers are not affected by a levy increase
0.35%
0.30%
Employer pays: 50%
Levy Increase
0.25%
Employee pays: 50%
Levy Increase
0.20%
0.15%
0.10%
0.05%
0.00%
50
Workers with
no formal
education or at
most primary
school see a
marginal rise in
their wages.
Wages of Foreign Workers are Affected by Levies
SPM or Equivalent
STPM or equivalent
-1.50%
PMR or equivalent
-1.00%
UPSR/UPSA or equivalent
-0.50%
No schooling
0.00%
-2.00%
-2.50%
-3.00%
Employer pays: 50%
Levy Increase
-3.50%
Employee pays: 50%
Levy Increase
-4.00%
51
This is
particularly true
for lower-skill
workers.
NEW LAWS AFTER THE REPORT WAS
COMPLETED
The World Bank, East Asia Pacific Region,
Human Development Dept. Social Protection & Labor Unit
Minimum Wage and Levies
• Minimum Wage Deferral for Foreign Workers – March 2013:
The Malaysian government has approved the delayed implementation by small and
medium-sized enterprises (SMEs) of new minimum wage standard for their foreign
workers. The National Wages Consultative Council, which is responsible for the
implementation of the standard, said in a statement that the employers in SMEs are
permitted to defer the implementation until Dec. 31.
• Levy to be Paid by Foreign Workers– January 2013:
“The minimum wage, which came into force this year has raised the salary for all
workers on an average of between 30 per cent and 50 per cent, or from RM600RM700 per month to RM900 monthly.”
“The Government’s move to impose a levy on foreign workers will not be a burden
to them as the levy paid is between RM34.16 and RM154.16 per month as compared
to a salary increase of between RM300 to RM500 per month”
Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah
FOREIGN WORKFORCE MANAGEMENT
POLICIES AND COMPARABLE SYSTEMS
The World Bank, East Asia Pacific Region,
Human Development Dept. Social Protection & Labor Unit
Designing Immigration Policies
Building an immigration system is a complex task with a repercussion
on a multiplicity of spheres.
Learning from other countries is important, but a one-size-fits-all
approaches do not exist.
Key factors to take into account are:
1.
2.
3.
4.
Age structure and dynamics of the population
Labor Market conditions (unemployment, labor force participation,
wage growth, etc…)
Education levels of natives and migrants (supply, demand and skill
gaps)
Geographic and cultural factors
Flexibility of Policy Regime
Institutional bodies in charge of immigration need the flexibility to respond to
sudden changes in the economic environment.
Basic levies, fees and taxes can be used to influence total number of foreign workers.
Differential levies can be used to channel foreign workers to targeted sectors which
face shortages and have national priorities.
South Korea has a very flexible approach with sector specific quotas revised
regularly.
The Singaporean system is regularly adjusted based on market conditions by using
the foreign workers levy system that differs by sector, skill and firm size.
Malaysia: annual levy system and quotas at the sectoral and sub-sectoral level. This
system does not fully respond to underlying market conditions and their rapid
evolution.
Consultations with stakeholders
Policy decisions should be taken in consultations with key stakeholders, in
particular the private firms in sectors that critically depend on foreign labor.
Such consultations should take place on a regular basis and be clearly
structured.
In Singapore, extension of the maximum employment period for foreign low
skilled workers (from 6 to 10 years) to maximize productivity gains.
In Australia every a list of occupations in need is compiled in consultation with
representatives of unions and industries.
In Canada, reports of consultations with unions, employers and experts are
made public.
Malaysian stakeholders revealed that consultations are ad-hoc and do not
effectively inform the government of market conditions on a regular basis.
Preventing Undocumented Workers
When it comes to undocumented workers, a country should remove the economic
incentives (high levies/visa fees, high minimum wages etc) for undocumented
migration by:
(1) having repercussions for employers hiring undocumented workers
(2) imposing reasonable costs and fees for employing documented foreign
workers so that incentives for undocumented migration stays low
(3) having in place a clear legislation regulating the activities of migration
agencies
In Malaysia, several measures to prevent illegal migration (Anti-Trafficking in Person
Act, stricter conditions for private agencies to be licensed by MOHA, implementation
of a new regularization (6P) program).
Only countries with natural barriers (e.g. Australia) can properly manage to limit
undocumented migration.
In countries with large porous borders (United States and European Union) unskilled
workers have relatively easy access through irregular channels.
KEY POLICY INSTRUMENTS
The World Bank, East Asia Pacific Region,
Human Development Dept. Social Protection & Labor Unit
Towards a new system: Levies Vs. Quotas
QUOTAS
Almost every government in the world uses quantitative
restrictions to control the number of migrants and foreign
workers entering their jurisdictions.
Economics literature and policy discussions are full of
examples showing why price mechanisms – taxes, tariffs,
levies – can be more efficient and effective than quantity
restrictions.
Towards a new system: Levies Vs. Quotas
BENEFITS OF LEVIES
Levies provide flexibility to government agencies to
respond to sudden changes in the economic environment.
Levies allow governments to raise revenues as a taxation
mechanism. This revenue would otherwise accrue to the
recruiting agencies and employers. They can be used
training, enforcement and other objectives related to
foreign worker policies.
Levies can act as wage stabilization mechanisms and
provide balanced wage growth paths.
Towards a new system: Critical features
An ideal mechanism for Malaysia would involve:
1) Maintaining more relaxed quotas with more strategically
designed levies across sectors.
2) Levies that are not occupation-specific but sector-specific. The
definition of sectors should be neither extremely broad or narrow.
3) Levies that are reviewed and adjusted periodically – possibly
every 2-3 years – using signals from the labor market. The critical
observation will be the sector-specific wage levels.
4) Effective enforcement, especially given the minimum wage laws
are likely to encourage non-compliance and informality.
CONCLUSION
KEY MESSAGES
The World Bank, East Asia Pacific Region,
Human Development Dept. Social Protection & Labor Unit
Key messages
Malaysia’s rapid economic growth accompanied with labor
market shortages for unskilled workers continue to attract
foreign workers from neighboring countries.
The differences in growth differentials and overall educational
gaps between the labor forces of Malaysia and its more
populous neighbors, such as Indonesia and the Philippines, are
the key pull and push factors that fuel the current migration
patterns.
Appropriate policies need to be designed with these economic
fundamentals in mind.
Key messages
An abrupt disruption of foreign unskilled labor supply could
cause unpredictable effects in the economy.
Since unemployment levels are low and vast majority of the
Malaysian workers do not compete with foreign workers,
benefits to domestic workers from a decline in the inflow of
foreign labor are limited.
Thus, the government is highly encouraged to review its foreign
workers program and design nuanced policies to accommodate
the economy’s particular needs by sector and human capital
categories.
Key messages
Large number of firms in labor intensive sectors would not exist
without the cost advantages provided by low-skilled low-cost
foreign labor.
Given the types of activities and markets that some of these
companies operate in (low value added), they will continue to rely
heavily on low skill (low cost) foreign labor in the foreseeable
future.
Without foreign labor, these sectors would simply disappear and
lead to unemployment of significant number of mid-skilled local
workers in the short to medium term.
Key messages
There are also skills gaps on the higher end of the labor market
spectrum.
It takes a long period for the education and training systems to
produce new core skills. It is possible that the country will have to
rely on foreign talent to fill these occupational gaps to avoid
having bottlenecks.
Government should consider more flexible entry regimes and
promising long-term opportunities in order to attract and retain
skilled foreign workers, including university students.
Key messages
Another clear lessons to emerge is to invest in the collection of
reliable, high quality, regular and detailed data on all workers—
local and foreign— and firms to track the labor market
conditions, properly understand the effects of foreign labor and
evaluate future policy changes.
The data collection program has to be a joint effort of all relevant
agencies that are responsible for labor markets, education,
taxation and domestic security.
Key messages
It is beneficial to maintain a list of occupations and sectors in
short supply of skills, namely a “workforce dashboard.”
This tool requires periodically updated data to be shared by all
relevant government agencies. The system prevents overuse of
foreign workers and bring objectivity into the process, instead
of the government relying on potentially subjective data
provided by the employers.
THANK YOU!!!
Ximena Del Carpio
[email protected]
Washington DC +(202) 458-1004
Çaglar Özden
[email protected]
Washington DC +(202) 473-5549
Mauro Testaverde
[email protected]
Washington DC +(202) 458-4354