Cover Story: The high cost of foreign labour

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This article first appeared in The Edge Malaysia Weekly, on October 19 - 25, 2015.


Foreign-Workers_68_TEM1080_theedgemarketsFOREIGN workers may be critical to the country’s construction and plantation sectors — they also take on less-than-desirable jobs like live-in maids and security guards — but with them making up more than 13% of the workforce in this country, perhaps the crutch is becoming a prosthetic limb.

Conservative estimates put the number of registered foreign workers in Malaysia at two million and the undocumented workers at easily double that. However, the actual number of foreign workers in the country could be as high as six million — more than the population of Singapore.

Yet, Malaysian employers still cannot get enough cheap labour.

Over the next three years, Home Minister Datuk Seri Ahmad Zahid Hamidi plans to import 1.5 million workers from Bangladesh. He has also reportedly promised to deport all (by his estimates) two million illegal foreign workers to make way for the new batch of Bangladeshis.

The primary concern, however, is not whether the deportation of illegal workers is achievable or realistic. There is strong demand for cheap labour in Malaysia and if the government does not find a way to satisfy it, foreign workers will end up on Malaysian soil even if they are deported.

“Right now, we have about 2.2 million foreign workers who are here legally. Realistically, talking to the industries, there could be six to seven million in total, including illegal workers,” says Datuk Shamsuddin Bardan, executive director of the Malaysian Employers Federation.

Not only is demand drawing foreign workers here but also the people who benefit from bringing them in. “There is a lot of money in importing foreign workers,” says Shamsuddin bluntly.

When foreign workers come in through the legal channels, their agents and even the government make money. This is good business because the foreign workers have to leave the country after their permits have expired, often in three years. Hence, new foreign workers are always needed.

When they seek to use other channels, however, the price paid can be much higher. Earlier this year, mass graves were discovered in Perlis along the Thai border, the result of human trafficking into the country.

Tackling the problem of foreign workers is not straightforward as it involves many different stakeholders.

Employers often point out that they would prefer to hire locals but Malaysians shun certain jobs. Indeed, foreign workers are indispensable to sectors like construction and plantations, although it is not difficult to find foreign workers in restaurants and hotels too. These may not be the best-paying jobs but if foreign workers continue to fill them, the jobs are guaranteed to stay low-paying.

“For construction and plantations, yes, we need foreign workers. But locals should be working in our restaurants or as security guards. The problem is that locals don’t find these jobs appealing. We need to rebrand the jobs to make them appealing to locals while increasing the value of the jobs so that employers are willing to pay more,” says Shamsuddin.

Bear in mind, though, that some of the jobs undertaken by foreign workers are not low-paying. A welder, for example, can easily make more than RM3,000 a month. An experienced one, much more.

Employers should also share some of the blame, says Shamsuddin, noting that they can be very selfish, keeping wages low to protect their bottom lines.

Ands when wages are low, employers can’t blame locals for shunning the job when it cannot support them or their families. Realistically, Shamsuddin says, foreign workers should make up only 15% of the official labour force — about 2.2 million of 14.23 million workers. However, foreign workers form over a third of the enlarged labour force, which impacts the real economy significantly.

“Every year, remittances by these workers take RM30 billion out of the country. This is the official figure. The actual figure could be much higher. Imagine if all that money stayed in the domestic economy,” says Shamsuddin.

Furthermore, an excessive number of foreign workers will depress wage growth in the country. It might be nice to think that most Malaysians do not compete directly with foreign workers for jobs and do not have to get their hands dirty. But statistics show that only 25.2% of the labour force is comprised of skilled workers, who are defined as managers, professionals and technicians.

It would be unrealistic for the government to think that it can achieve high-income status of US$15,000 gross national product per capita by 2020 if a substantial portion of the workforce is stuck with low wages. After all, for wages to increase, so must the cost of living and doing business.

“To try to achieve high income without improving productivity would be suicidal. We can’t increase productivity if we rely on foreign workers,” says Shamsuddin, pointing out that Singapore’s labour productivity is about 3.8 times higher than Malaysia’s.

And no thanks to the depreciating ringgit, foreign workers are no longer as cheap as they used to be. For example, Philippine maids who are supposed to be paid US$400 a month are costing their employers a lot more these days. Likewise, several industry players say foreign workers who remit money to their home countries are also asking for higher wages.

Employers are cognisant of the fact and are already moving towards automation to reduce their dependence on foreign labour that can be difficult to secure legally and has also become much more expensive.

There is an advantage to having lots of foreign workers; they act as a buffer. “During the 1997/98 Asian financial crisis, there were over 850,000 retrenchments. But about 800,000 of them involved foreign workers, who were sent back home,” recounts Shamsuddin.

Perhaps, a crash in the local job market is what it will take to slash the number of foreign workers. Alternatively, there should be a lot more jobs with specialised skills that unskilled cheap foreign labour will not be able to fill.