This article first appeared in The Edge Financial Daily on March 29, 2019

KUALA LUMPUR: Cheap available foreign labour is a big stumbling block that has hindered the growth on the country’s productivity and wage.

Bank Negara Malaysia (BNM) assistant governor Marzunisham Omar said heavy dependence on cheap foreign labour, which is in ample suppy in the country, is a key issue that needs to be addressed for better productivity and wage growth.

“We have to tackle this issue because as long as we have unlimited supply and easy entry of cheap foreign labour, we will continue to be reliant on a low-cost model that is not sustainable.

“This will not help us move to a higher value-added economy that we want. This will not help our workers earn higher wages,” he told reporters on the sidelines of a Malaysian Economic Association economic forum here yesterday. Marzunisham added that there must be a holistic approach to stem issues in the current labour market.

On the government’s front, these include conducting a review on the country’s existing labour law, encouraging the industry to adopt a productivity-linked wage system, as well as providing incentives that either encourage capital spending and automation irrespective of industry, or align with the number of jobs at a certain level of pay that firms can create.

The education system needs to be improved to produce better quality graduates in addressing talent scarcity, while businesses must also rise to the occasion, by committing to higher levels of automation, instead of growing the “addiction to low-cost labour”, he added.

“There is a need for us to get our act together to attract the right kind of investments into our economy, both from foreign and domestic investors, so that we can continuously create jobs — and the right kind of jobs — for Malaysians.”

According to Marzunisham, Malaysia has not been able to create the necessary number of high-skilled jobs to absorb the number of graduates entering the job market. Talent outflow is also an issue due to the lower wages offered here as compared to foreign countries. Annually, Malaysia produces 170,000 graduates holding diplomas and above, but the economy provided only a net employment of 97,000 high-skilled jobs, he added.

Alliance Bank chief economist Manokaran Mottain echoed Marzunisham’s view saying that wages, which are supposed to be rising on par with the domestic economy being at or close to full employment, are not keeping up due to the easy access to foreign labour. “I would believe that the government should focus on the wages and more concrete measures aimed at foreign workers. How long are we going to depend on foreign workers?

“If you want increased productivity, or to employ more locals, then firms should be given some kind of incentives, which [are currently] lacking,” he said during the panel session.

In BNM’s 2018 annual report released yesterday, the central bank highlighted that Malaysians are underpaid for the level of productivity they are producing. It said Malaysian workers are paid less than their regional peers, such as those in Singapore and South Korea. Labour productivity, as measured by real value-added per hour worked, increased by 3.4% in 2018, lower than 3.5% registered in 2017.