Malaysia’s massive foreign worker dependency

Unscrupulous employers take possession of workers’ passports on the premise of safekeeping, but it is really to give employers leverage to threaten any worker with deportation. Workers are not allowed to leave the workplace and have no way of seeking help against abuse.

Although foreign workers are legally protected by Employment Act 1955, just like Malaysian workers, no government agencies check their welfare. There are also no formal legal channels for them to bring up work grievances or make complaints. Thus, workers have no way to enforce the terms of their contracts. Trade unions don’t represent them and any problems may be left to diplomats from respective embassies, usually when it’s too late.   

On October 1 the US Customs and Border Protection (CBP) issued a Withhold Release Order (WRO), banning the import into the United States rubber gloves manufactured by WRP Asia Pacific Sdn. Bhd, on the basis that products being produced by WRP are produced by forced labor where workers were subject to passport confiscation, illegal withholding of wages, and restricted freedom of movement.

This is of concern to Malaysia, which supplies 63 percent of worldwide demandfor rubber gloves, over the possibility that this ban could be extended to other manufacturers who are employing the same labor practices.  Indications are that the industry has become defensive about the issue of foreign worker exploitation rather than seek to reform the situation.

Malaysia’s dependency on foreign workers also has a number of other social and economic implications. The country faces a youth unemployment crisis, with almost 1.5 million youths either unemployed or not working by choice. Part time work by youths in developed countries is considered part of self-discipline building, experience, interpersonal skills, and a rite-of-passage to other vocations in life. In some respects, it’s part of a person’s education, which is missing in Malaysia.

This refusal to take part in entry-level jobs has an effect on national creativity and innovation. Entrepreneurship research clearly identifies a higher propensity for enterprise start-ups where someone has industry knowledge and experience. Without Malaysian youths in a wide array of service jobs, the potential for youths to discover entrepreneurial opportunities is greatly diminished. Innovative start-ups in Malaysia today are far behind those in Singapore, South Korea, and Indonesia.

The availability of low-skilled and low-cost imigre labor is a great disincentive to firms improve productivity and competitiveness. Even with massive efforts through universities to create a high skilled, high technology economy, Malaysia is still known as a low skilled, labor intensive, low productivity investment destination.

Foreign workers minimize their expenditure, sending home 50-70 percent of what they earn, remitting RM36 billion annually. At just under 3 percent of national GDP, this drains the local economy of consumption expenditure. The contribution of foreign manufacturing companies on tax holidays employing foreign workers who remit most of their income to the Malaysian economy is an issue that needs deep policy considerations.

Foreign worker policies have been ad hoc and ever changing, sometimes for the benefit of highly placed politicians. Latheefa Koya, the Chief Commissioner of the Malaysian Anti-Corruption Commission, has charged that the industry is full of corruption. Talk about moving responsibility from the Home Ministry to the Human Resources Ministry, hower, will achieve nothing without a thorough policy review of labor requirements, conditions, and the costs and benefits of foreign workers. The planned insuring of foreign workers for employment-related injury starting January 1, and talk of the Malaysian Trade Union Congress to represent foreign workers is too little, too late. Policing the industry with a code of conduct, inspecting foreign workers workplace conditions, putting in a grievance mechanism, and reforming the visa system should be high priorities.

Although foreign workers provide undeniable benefits to Malaysia, as they do across the world, the costs have to be considered. Procurement, contribution to the local economy, exploitation, international reputation, industry productivity and innovation, employment opportunities for locals, and raising wages to more realistic levels need consideration. For Malaysia to move from the low-wage, low-skill, and low productivity position it currently occupies to a much more competitive economic position depends directly on reforming the foreign labor sector.