Foreign labour has little impact in short term: Khazanah Research Institute

KUALA LUMPUR: Khazanah Research Institute (KRI) found that the influx of foreign workers in the country has only marginal, if any, impact on both labour market outcomes and productivity in the short term but could be more pervasive in the long term in the country’s efforts to become a high-income economy.
The State of Households 2018 report lead author Allen Ng said reliance on foreign workers, for example, is found to be associated with lower levels of technical adoption in most economic sub-sectors and could in part lead to an economic structure that relies more on low-cost labour, which could impede upon the country’s economic transition towards becoming a high-income economy.
“If we dwell in this longer, it (foreign workers) could negatively affect the trajectory of Malaysia’s development, and that’s a bigger problem that we should look at, not the direct competition of foreign workers on local wages and local employment,” he said.
In 2017, foreign labour represent 15.5% of all employed persons in Malaysia. Sectors hiring the most foreign workers are agriculture (37.4%), construction (23.6%) and manufacturing (20.5%).
The increase in foreign workers is slowing, but foreign workers remains high at 2.2 million documented workers last year.
KRI found that although the influx of foreign workers in the country is likely to generate only marginal impact, if any, on both labour market outcomes and productivity in the shorter horizon, about 1 million low-skilled rural workers in Malaysia face the threat of job displacement and wage suppression due to the presence of foreign workers.
It said most empirical studies found no significant effect of foreign workers on labour market outcomes, given that foreign workers are mainly occupying different economic roles in general compared to natives. Nevertheless, the impact can be uneven for Malaysian workers, especially those in low-skilled jobs.
On wages, foreign workers seem to have a small negative effect. A unit increase in the share of foreign workers out of total employment in each sector and year leads to a 3.8% decrease in overall average wages. But this is unsurprising given that foreign workers are primarily employed in low-skilled jobs, which tend to have lower wages. This does not necessarily mean that the supply of foreign workers suppressed overall wages, as native wages have grown in the same period.
“For high-skilled workers, the impact is marginal. For middle-skilled or the bulk of the Malaysian population, it is complementary. But low-skilled workers who are directly in the space of foreign workers will be negatively affected. On a net basis, it is impossible to find a study to show that immigration is negative for a country,” he said at a press conference.