Foreign Workers in Malaysia: Assessment of their Economic Effects and Review of the Policy - KNOMAD
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
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 UnitObjective
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. Identify skills mismatches/gaps, and suboptimal amount of training.
2. Evaluate three key policies in the skills domain: soft skills and English language.
3. Assess skill forming policies, benchmarking and learning from international
practices.
4. Future human resource requirements: Micro-simulation results.
5. Way forward to better manage human resources.
II. Immigration Management
1. Characterize labor migration in Malaysia over time, sectors and states.
2. Identify economic and social impact of foreign workers in the economy.
3. Assess current policy compared to international systems.
4. Way forward to better manage immigration.
The World Bank, East Asia Pacific Region,
3
Human Development Dept. Social Protection & Labor UnitRoad map
1. What are the potential concerns over the employment of foreign workers?
2. Foreign workers and Malaysia:
• Determinants of employment of foreign workers in Malaysia
• Profile of foreign workers in Malaysia
3. Economic Impact of Foreign Workers on:
• Labor markets
• Firm-sub-sector productivity
4. Potential effects of policy changes:
• Macroeconomic Impacts
• Sub-sector growth and employment
5. Foreign Workers Management:
• Current Policies and comparable Systems
6. Conclusion:
• Key Messages
The World Bank, East Asia Pacific Region,
4
Human Development Dept. Social Protection & Labor UnitPotential Concerns over the Employment of Foreign Workers
1. 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
2. Do foreign workers hamper productivity increase and technological advances?
• Substitution of unskilled labor for technology
• Sectoral diversification of the economy
3. 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
4. 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,
5
Human Development Dept. Social Protection & Labor UnitValue 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.
The World Bank, East Asia Pacific Region,
6
Human Development Dept. Social Protection & Labor UnitFOREIGN WORKERS AND MALAYSIA
MAIN DETERMINANTS
The World Bank, East Asia Pacific Region,
Human Development Dept. Social Protection & Labor UnitEducation levels in Malaysia improved drastically over the last 20 years
Education distribution of Malaysian
One of the most remarkable features workers
of the Malaysian experience has been 100%
the advances achieved in education
levels of the labor force over a very 80%
short period.
60%
The share of Malaysians with (at most)
primary school education declined 40%
from 61% in 1990 to 26% in 2010
20%
The share of secondary educated (at
most) increased from 34% to 56%.
0%
The share of college educated
Not applicable No formal/Primary Lower Secondary
increased from 5% to 18% in the same
Upper Secondary Post secondary Diploma/Certificate
period. Degree
Note: The analysis is focuses on the working age population (15 to 64 years of age)
8Education levels of younger workers improved even faster
The increase in the education levels of Education distribution of Malaysian workers
the new entrants to the labor market - (25-35)
100%
25-35 age group - has been even more
remarkable.
80%
In 1990, over 50% of young workers
60%
had primary education (at most), 40%
had secondary education and less than
10% had tertiary education. 40%
20%
In 2010, around 10% had primary, over
60% had secondary and close to 30%
had tertiary education. 0%
The remarkable expansion of formal Not applicable No formal/Primary Lower Secondary
Upper Secondary Post secondary Diploma/Certificate
education and human capital levels
Degree
led to changes in job preferences of
many Malaysians.
9Labor 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
20% 2,000
0
2010
1990
1995
2000
2005
2011
0%
1990
1992
1993
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Male Natives Female natives
Total employed Total Unemployed
10The economy heavily relies on export-oriented manufacturing and
domestic service sectors
Agriculture
Mining
Distribution of labor force by economic sector Mfg food-bev-tob
Mfg textile
Mfg wood
Mfg paper-furn
2010 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
1990 Real estate
Business services
Education
Health
Other services
Public administration
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
12FOREIGN WORKERS AND MALAYSIA
PROFILE OF FOREIGN WORKERS
The World Bank, East Asia Pacific Region,
Human Development Dept. Social Protection & Labor UnitLabor Force data account for about 2+ million foreign workers in Malaysia
Foreign Workers in Malaysia, 1990-2010
2,500,000
Inflows of foreign workers 2,000,000
have steadily increased since
the early 1990s, when the
government introduced 1,500,000
formal guidelines on foreign
workforce management.
1,000,000
Due to large number of
unregistered undocumented 500,000
workers, it is difficult to get a
more precise estimate.
0
1993
2007
1990
1992
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2009
2010
Total (adj.) Female (adj.) Male (adj.)
14Foreign 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 % labor force
(adj.)
4.00 % 15+ (adj.)
2.00
0.00
15Indonesia is the main sending country and Sabah the main recipient state
Nearly two-thirds of foreign
Rest
workers in Malaysia are in
three states – Sabah, Selangor
Bangladesh Other SE and Johor.
Asia
Thailand
Johor Kedah
Kelantan
Melaka
Philippines
Sabah Negeri
Indonesia
Sembilan
Pahang
Singapore
Pulau
Pinang
Perak
WP Labuan
Almost two-thirds of the foreign Selangor Perlis
WP Kuala
workers come from Indonesia. The Lumpur Terenggan
next largest group are from the u
Philippines (13%).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% 20% 40% 60% 80% 100%
Agriculture Construction Other services
Wholesale-retail Accommodation and resturant Mfg wood
Mfg meas-med-com Business services Mfg food-bev-tob
Metal-machinery-equ Mfg chem-rub Logistics
Mfg transp equip Mfg paper-furn Mfg textile
Health Education Public administration
Mining Real estate Utilities
Post and telecom Finance
17Foreign 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 2010 2000 1990
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
0 5 10 15 20 25 30 35 40 45 50
18Foreign 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.
Education distribution of Malaysian workers Education distribution of foreign workers
100% 100%
80% 80%
60% 60%
40% 40%
20% 20%
0% 0%
1990
1992
1993
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2009
2010
1990
1992
1993
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2009
2010
Not applicable 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 Degree
19Labor 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% 50% 100%
0% 50% 100%
Not applicable Primary/No formal
Secondary Tertiary
20ECONOMIC IMPACT
LABOR MARKETS
The World Bank, East Asia Pacific Region,
Human Development Dept. Social Protection & Labor UnitWhich 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 FOREIGN
GROWTH WORKERSPull 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 part-
400
time) are created for Malaysian workers in a
given sector in a state as a result of the 350
entry of 1000 new foreign workers. This is 300
mainly a reallocation effect
250
700 200
150
600
100
500
50
400 0
Male Female Male Female
300
Total Employment Part-Time Employment
200
The effect on men and women seems
100 to vary significantly, especially in
terms of total employment.
0
Total Employment Part-Time
Employment
24Effects are heterogeneous across age groups and sectors
Small effect on young workers, while
600
much larger positive effect on other
age groups. 500
300 400
300
250
200
200
100
150
0
Agriculture & Manufaturing Services
100 Mining
50 The employment of foreign workers
leads to increased employment of
0 Malaysians in every major sector.
15-19 20-29 30-44 45+
25Effects 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 -300 -200 -100 0 100 200 300 400
26Impact 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 -0.04 -0.02 0.00 0.02 0.04 0.06 0.08 0.10
27When 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.
28ECONOMIC IMPACT
FIRMS & PRODUCTIVITY
The World Bank, East Asia Pacific Region,
Human Development Dept. Social Protection & Labor UnitEstablishment 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 Small Medium Large
80%
Accommodation
60%
40%
20%
ICT Construction
0% 80.0%
80.0% Micro Small Medium Large
60.0% 60.0%
40.0% 40.0%
20.0% 20.0%
0.0% 0.0%
Micro Small Medium Large Micro Small Medium Large
30It 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
1,883
1,006
415 363
Micro Small Medium Large
31In 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 Accommodation ICT
Without migrants With migrants
32Again, 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
FOREIGN
PRODUCTIVITY
LABORThe 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
4.0% Accommodation the
analysis is conducted for
firms with 5+ workers due
2.0% to data availability
0.0%
Construction (50+)
ICT (5+)
Manufacturing (50+)
Plantation (50+)
Accommodation (5+)
-2.0%
-4.0%
-6.0%
34…and by firm size
For smaller firms (20 to 50 workers) the results are very different.
0%
Manufacturing (20 to Plantation (20 to 50) Construction (20 to 50)
-2% 50)
-4%
-6%
-8%
-10%
-12%
-14%
-16%
-18%
-20%
35Impact 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%
36Effects 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 UnitCrime 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 Rape Robbery Body House Vehicles Other
Injury breaking Thefts Property
Total Malaysians Foreigners thefts
Source: Author’s calculations with Data from the Royal Malaysian Police
39Does 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 ?
FOREIGN
CRIME
WORKERSFigure 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%
Violent Property Murder Rape Robbery Body House Vehicles Other
-0.5% Injury breaking Thefts Property
thefts
-1.0%
-1.5%
-2.0% The effect on
% of crime
-2.5% crime rate is
even more
-3.0%
pronounced.
-3.5%
-4.0%
-4.5%
-5.0%
Source: Author’s calculations with Data from the Royal Malaysian Police
41Making 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.
42POTENTIAL EFFECTS OF POLICY
CHANGES
MACROECONOMIC IMPACT
The World Bank, East Asia Pacific Region,
Human Development Dept. Social Protection & Labor UnitMacroeconomic 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.
44The Model Has 23 sectors
Sectoral Growth Rates 2005-2010
1 AGRICULTURE
2 MINIG
MANUFACTURING
3 Mfg food-beverage-tobacco 0.8
4 Mfg textile
5 Mfg wood 0.7
6 Mfg paper-furniture
7 Mfg chemical-rub
0.6
8 Metal-machinery-equip
9 Mfg measurement-med-com
10 Mfg transport equip 0.5
11 UTILITIES 0.4
12 CONSTRUCTION
SERVICES 0.3
13 Wholesale-retail
14 Accommodation and restaurants 0.2
15 Logistics
16 Post and telecom 0.1
17 Finance
18 Real estate
0
19 Business services 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
20 Education
21 Health -0.1
22 Other services
23 Public administration -0.2 Model Macro CGE
45The Model Has 21 Educational Categories Tracked Over Time
Skill Levels
Evolution of Labor Supply by Skill Level
Lower Skill - Secondary or less 2
Simulated vs. Actual - 2005-2010
1 No schooling
2 UPSR/UPSA equivalent
3 PMR or equivalent
4 SPM or equivalent
5 STPM or equivalent 1.5
Medium Skill -Certificate/Diploma
6 Arts & Humanities
7 Social science, business, law
8 Science, math, IT
1
9 Engineering
10 Agriculture
11 Health
12 Services
13 Education 0.5
Higher Skill -University Degree
14 Arts & Humanities
15 Social science, business, law
16 Science, math, IT
17 Engineering 0
18 Agriculture 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
19 Health
20 Services
21 Education
-0.5 LFS CGE
46Once Levy Costs are Adjusted, Legal International Immigration is expected to fall
International Immigration International Immigration
Employers Pay for the Levy Workers Pay for the Levy
1.3
1.3
1.2
1.2
1.1 1.1
Millions
Millions
1 1
0.9 0.9
0.8 0.8
Reference 20% Levy Increase
50% Levy Increase 100% Levy Increase
47The 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%
48The 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 0.001 0.0015 0.002
Employee pays 50% Levy Employer pays 50% Levy
49Wages 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% Workers with
Levy Increase
0.20% no formal
education or at
0.15%
most primary
0.10% school see a
marginal rise in
0.05%
their wages.
0.00%
50Wages of Foreign Workers are Affected by Levies
0.00%
SPM or Equivalent
PMR or equivalent
No schooling
STPM or equivalent
UPSR/UPSA or equivalent
-0.50%
-1.00%
This is
-1.50% particularly true
for lower-skill
-2.00% workers.
-2.50%
-3.00% Employer pays: 50%
Levy Increase
-3.50% Employee pays: 50%
Levy Increase
-4.00%
51NEW LAWS AFTER THE REPORT WAS
COMPLETED
The World Bank, East Asia Pacific Region,
Human Development Dept. Social Protection & Labor UnitMinimum 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 RM600-
RM700 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 HanadzlahFOREIGN WORKFORCE MANAGEMENT
POLICIES AND COMPARABLE SYSTEMS
The World Bank, East Asia Pacific Region,
Human Development Dept. Social Protection & Labor UnitDesigning 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. Age structure and dynamics of the population
2. Labor Market conditions (unemployment, labor force participation,
wage growth, etc…)
3. Education levels of natives and migrants (supply, demand and skill
gaps)
4. Geographic and cultural factorsFlexibility 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 UnitTowards 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 UnitKey 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
xdelcarpio@worldbank.org
Washington DC +(202) 458-1004
Çaglar Özden
cozden@worldbank.org
Washington DC +(202) 473-5549
Mauro Testaverde
mtestaverde@worldbank.org
Washington DC +(202) 458-4354You can also read
