Foreign Workers: Yes or No?

Economy Minister Rafizi Ramli has disagreed with a call from two restaurant groups for the government to allow foreign workers to work in the sector. Rafizi said the 13th Malaysia Plan will continue to focus on reducing the nation’s reliance on low-skilled foreign labour.

This discussion returns cyclically in Malaysia; let’s touch it with some numbers. The number of unemployed people in Malaysia is just above half a million (546,700), so the official unemployment rate stands at 3.2%.

How many foreign workers are there in Malaysia? In 2022, the number of migrant workers amounted to around 2.22 million. This number does not account for the number of illegal migrant workers, which may bring the total figure to around 3 to 3.5 million.

Now, the numbers clearly tell us one simple thing: even if we were able to force or induce all the unemployed persons (half a million) to fill jobs currently filled by legal migrants (2.2 million), we would still remain with more than 1.7 million jobs to be filled.

Let’s now come to the topic of the trade-off between workers and automation. Will higher wages spur the mechanization of production processes? Well, yes and no. Higher wages do create an incentive to consider the possibility of introducing a higher degree of automation. However, for such a replacement to happen, certain conditions need to exist on the ground and ultimately those conditions are very different for each firm.

In fact, adopting more roundabout methods of production is not just a matter of costs, but mostly about making those costs meaningful. This means that technical progress is not possible without the relevant economies of scale: even if a firm has the financial resources to move to more capital-intensive processes, the shift would be meaningless if the scale of operations of that firm would not make the investment justifiable.

The main obstacle to automation is not the availability of cheap foreign labour, but, rather, the fragmented nature of Malaysian capitalism, summarized by the dichotomy between Micro, Small and Medium Enterprises (MSMEs) and big corporations: MSMEs are around 96% of the number of firms, but they produce less than 40% of the GDP, employing half of the labour force. It means that 3-4% of Malaysian businesses produce more than 60% of the GDP.

A fragmented structure of capitalism is an obstacle to wage increases (rather than the other way around) and social mobility. There are two more problems that cannot be solved without promoting a mechanism of industrial concentration: social protection and technical progress.

Want to know more? CME produces a monthly economic bulletin that is available HERE or reach out to us for your tailor-made market report at general@centermarketedu.com.