Research and advocacy of progressive and pragmatic policy ideas.

Research Societal Contracts

Beyond Boom And Bust, Part 3

A Long-Term Policy Approach Towards Migrant Labour

In this final instalment of our research series, we propose key pillars of a much-needed reform in the way we plan for, recruit and manage migrant workers in Malaysia.

By Faisal Ariff8 January 2022

Malaysia has long been dependent on a migrant labour force. The sustained growth of Malaysia’s economy – even Malaya’s economy – would not have been possible without migrant labour to plug the gaps in the country’s manpower needs.

Although it has become widely accepted that migrant workers help to do dirty, difficult and dangerous work (3D), migrant workers are also plentifully employed in less-than-3D jobs in the services and manufacturing sectors. This dependence on migrant workers has clearly become a complex structural issue that cannot be truly addressed without a policy reset.

Many Malaysian companies’ operations are either partially or very much dependent on the employment of migrant workers. Many of these companies’ profit margins are dependent on keeping wages low through heavy, and heavy-handed, use of foreign labour. The risks this poses to business and country reputation are becoming ever sharper, as shown by the case of Malaysian glove-making companies which had its exports to the US blocked due to allegations of forced labour.

While the government continues to encourage companies to invest in new machinery and increase automation, the uptake is slow due to the upfront costs involved. In some sectors, such as retail and F&B, the capacity for labour-saving automation is limited though there have been efforts such as robot waiters and robot cleaners in larger establishments. It is high time that we accept that in parallel with continuing efforts to pursue 4IR and greater labour productivity, we must also make room for a different migrant labour policy approach – one that truly anticipates sectoral labour needs, is sustainable and is humane.

A Different Way

Earlier installments of this research series, published in June and August 2021, highlighted the pitfalls of Malaysia’s current migrant worker policy as well as analysed potential solutions and the trade-offs involved. Our primer also provided an overview of the current migrant worker recruitment process.

In this article, we put forth our recommendations for a centrist, progressive approach toward migrant worker policy reform. While we generally agree with policymakers’ stated aims to move towards a high-income, high-productivity economy, we maintain that this needs to be accompanied with a labour policy based on (amongst other things) realistic and periodic long-term assessments on migrant labour needs for relevant economic sectors, while continuing to improve efforts to prioritise Malaysian workers. There also needs to be a clear shift in policy mindset, one that repudiates the current mode of mercenary migrant worker ‘supply’ which often leads to exploitation and oppression, towards a more just approach that sees foreign labour as valued economic contributors.

With these guiding principles in mind, we propose that a comprehensive migrant worker policy reform should comprise the following pillars:

  • An anticipatory and long-term-oriented policy towards issuing new foreign worker visas, driven by a National Labour Policy Commission that oversees all aspects of labour economics and planning in Malaysia, including setting foreign worker visa numbers and minimum wage levels;
  • A zero-indenture and zero-wage deduction policy regime as part of a larger system that regulates and enforces against forced labour.

Anticipatory Labour Planning

As outlined in Part 1 of this research series, the current policy approach towards migrant workers has led us into a “Groundhog Day” trap of boom-and-bust cycles and repeated waves of fresh recruitment followed by mass round-ups and  expulsion of foreign workers. 

We believe that this is driven by a reactive approach towards labour forecasting and management, where visa issuance is driven more by short-term employer quota requests rather than being anchored on long-term economic and sectoral labour planning, including estimates of industry shortages on skilled as well as unskilled labour against the supply of local labour by skill set, forecasts of automation and productivity improvements, amongst many other factors.

In response, we advocate for the establishment of a National Labour Policy Commission that will oversee all aspects of labour economics in Malaysia. The Commission would be empowered to use macro measures such as the setting of foreign worker visa quotas, as well as the regular revisions of minimum wage levels, as means to regulate the workings of a healthy and competitive Malaysian workforce. 

Much like how the Monetary Policy Committee (“MPC”) at Bank Negara Malaysia monitors the broader Malaysian economy and sets interest rate policy to regulate monetary stability in Malaysia, the National Labour Policy Commission* will have the responsibility of overseeing the Malaysian labour market, and will have the sole power for setting the number of migrant worker visas. This will ensure that the management of foreign worker visas is closely anchored to the long-term needs of the Malaysian labour market.

This will also ensure that visa quotas, by sector, are set by an economic planning entity with a macro view of labour market dynamics, including any potential impact on Malaysians’ employment and wage growth. The interplay between the level of wages and the intake of foreign workers would also need to be part of the equation; raising the minimum wage, for example, to be above the revised poverty line will need to be part of the policy discussion in order to reduce labour market distortions created by low-waged foreign labour.

Sectoral dependence on large numbers of low-waged foreign labour will also need to be addressed here, via, for example, instituting a Singapore-style tiered levy system on companies that employ large proportions of foreign labour.

Note: Such a National Labour Policy Commission will certainly require leadership from policymakers and regulators such as the Economic Planning Unit, the Treasury, Bank Negara Malaysia, Ministry of Human Resources, and representatives from other relevant Ministries such as the Ministry of International Trade and Industry, the Ministry of Plantation Industries and Commodities, the Ministry of Works, and the Ministry of Foreign Affairs. Industry and worker representatives should also have a seat at the table, so that decisions would be made taking into account all relevant views. Current entities with similar membership such as the National Employment Council or the National Wages Council could be expanded to take on the functions of the proposed National Labour Policy Commission.

More importantly, an anticipatory labour planning approach towards migrant worker supply would also encourage a more intentful approach for the government to work more closely with Malaysian companies, not only to understand and moderate sectoral demand for migrant labour, but also to minimise companies’ reliance on special leeways. The Parliamentary Public Accounts Committee Report revealed that of almost one million foreign workers who were approved to work in Malaysia between 2016 and 2018, 55% came to Malaysia through a Special Approvals process. A more long-term and planned approach towards visa quotas, with authority assigned to an economic forecasting function, would eliminate such “workaround” processes that only exacerbate boom-bust recruitment cycles.

In order to be able to incorporate economic forecasts in a meaningful way, obtaining and maintaining accurate data on the migrant worker population is crucial; current estimates from various parties show too wide a range. Collecting accurate data requires a multi-pronged strategy. Requiring employers to pay migrant worker salaries into Malaysian bank accounts is one such measure. Another measure is to regularise all foreign workers currently in the country. This will involve a period of amnesty and trust-building however, such that foreign workers would present themselves for registration. Identities should be verified via biometrics with the inclusion of facial recognition technology to complement fingerprinting and curtail identity switching.

Additional migrant worker data can also provide other insights to aid economic planning and decision making. For example, existing Bank Negara remittance data can be used to build a behavioural profile of an average migrant worker based on their nationality, gender, age, remittance frequency, quantum, and destination country. While not directly used for recruitment, data like this can help identify trends and movements to be mapped against economic cycles.

Anticipatory labour planning and avoiding boom-bust cycles in migrant labour hiring also requires a serious relook at measures to hire Malaysians first.  Currently, in order to hire foreign workers, employers are required to post vacancies on Malaysian job sites for a period of time first. There are also several incentives being offered to encourage recruitment of Malaysian workers, such as  the Jaminkerja wage subsidy initiative.

The effectiveness of these efforts is questionable. Based on income bands, the Malaysians that would most likely be competing for migrant worker jobs would be the B1 category, a subcategory within the B40 group who have a median and mean household income of RM1,929 and RM1,849 respectively. This group would likely overlap heavily with the 9.9% of Malaysians who lack internet access and the 5.2% of adults who are illiterate. Therefore, there is a strong possibility that potential B1 applicants would neither have access to or be able to read job-posting websites. In fact, it was recently revealed that the majority of the 300,000 Malaysian users registered on JobsMalaysia are skilled or semi-skilled graduates

SOCSO’s weekly local job fairs would be a much better mechanism to establish whether Malaysians are interested in the jobs on offer. In addition to SOCSO’s initiatives, incentives can be put in place to make it worthwhile for local and regional recruitment firms to match employee and employer, emulating the offline, in-person, boots-on-the-ground methods employed by recruiters in migrant worker source countries. Prihatin cash assistance data can also be used to match Malaysians with jobs. 

Furthermore, with large firms such as Top Glove having to compensate 10,000 Nepali and Bangladeshi foreign workers RM166 million or RM16,600 each to compensate them for recruitment costs, it would arguably be more economical for employers to devote resources to employ private recruitment firms to search for Malaysian interstate workers from Sabah and Kelantan. In essence, efforts to recruit Malaysian workers should go further, with communications and outreach programs that specifically target low income communities or communities without reliable internet access.

The remaining labour gap, if it is to be filled by migrant workers, should prioritise renewals of current VP(TE) passes, followed by those who have been regularised. Fresh intakes of migrant workers should be absolutely last on the list of policy options. 

The migrant worker levy system should be structured such that, in addition to being based on the percentage of total employees as mentioned above, increasingly higher levies can be imposed on workers with shorter working tenures in Malaysia. As highlighted previously, monthly levies in Singapore (in contrast to annual levies in Malaysia) significantly increase the cost of migrant labour to the point where there is an immaterial difference between a Singaporean labourer compared to a foreign worker, ensuring that migrant labour is a necessity rather than a convenience. The proceeds from the increased levy would not only cover the initial intention of covering the migrant worker’s usage of public goods, but expanded to also ensure that employers internalise the cost of externalities, fund immigration infrastructure upgrades, and help employers fund a shift towards high-productivity automation.

Zero Indenture And Zero Wage Deduction

The issue of forced labour in Malaysia has been in the forefront in the last two years, driven by import bans imposed by US Customs and Border Protection on products by high-profile glove-producing companies as well as oil palm producers. Major clients of Malaysian manufacturers are also taking a closer look, with the latest case being Dyson cutting ties with Malaysian company ATA IMS Berhad over labour concerns.

One of the definitions of forced labour as it pertains to migrant workers is the phenomenon of indentured labour, where the migrant worker essentially works to pay off the high costs of getting themselves recruited into the host country. To pay their recruitment related costs, many workers sell family assets, borrow money at high rates from lenders or go into debt with their employers. In the latter case, the migrant worker could face extremely high wage deductions from their employer towards paying down their debt. These high debts, incurred to pay the costs of migration itself (including passage home), render the migrant worker vulnerable to exploitative conditions.

Improving the migrant worker experience starts with ensuring that they are recruited the right way. Malaysia needs to ensure that migrant workers coming to Malaysia do not have to “purchase” the job on offer. All recruitment costs should be borne by the employer – the case of Top Glove’s repayments is an object lesson in showing that this is indeed possible.

We essentially need laws in place and thorough enforcement to ensure that migrant workers in Malaysia cannot be indentured, which will hopefully see further developments with Malaysia’s signing of ILO Protocol 29 on the Forced Labour Convention as well as the National Action Plan on Forced Labour (NAPFL) 2021-2025. The onus needs to be on the regulator and on companies that employ migrant workers to negotiate migration costs and expenses down, as they are in a far better position to do so collectively compared to any individual migrant worker.

A more flexible worker visa would also support a zero indenture principle. The current arrangement whereby temporary employment visas are tied to the employer, and valid for a renewable period of 12 months, leads to a situation where foreign workers are excessively beholden to their employers and vulnerable to exploitative practices. Under a more flexible visa regime, workers could shift to work for other employers within the same sector, or even to take up jobs in a different sector that might have a rising need for migrant labour. A more flexible visa, which allows the worker to look for a new job and employer within a grace period, would reduce the forces that today make migrant workers illegal upon termination or that drives workers to abscond.

As a supportive policy measure, all migrant workers should get a digital identity upon arrival in Malaysia, which is cross registered between the Malaysian government and their embassy. This digital identity will speed up the passport or temporary travel document replacement process in the event of improper retention or loss and allow the migrant worker to return home. This also removes the retention of passports as a method to control migrant workers using fear.

To ensure thorough observation of the zero indenture policy principle, a zero wage deductions policy also needs to be in force except for statutory deductions. Migrant workers must also be briefed about their right to all promised compensation, and net amount of compensation, before signing any agreements, pre-departure, in their own native language. The worker needs to be clear on the mathematical prospect of profit or savings from the duration provided for by the visa.

Once migrant workers have arrived in Malaysia, it is crucial that they have the right to humane standards and quality of life. As seen as recently as this year, the derelict and substandard nature of migrant worker housing is prevalent, and crowding in these areas made it a potent ground for Covid-19 transmission.

Very detailed requirements relating to worker welfare are contained in the Workers’ Minimum Standards of Housing and Amenities Act 1990. Sections exist for water, electricity, nurseries, recreation facilities, rent free use, dependents, estate hospitals, transportation of sick workers, reporting of infectious diseases and weekly inspections. These provisions are poorly respected by irresponsible employers and do not cover illegal migrants. Enforcement of these provisions by the Director General of Labour should match the zeal in which the Director General of Immigration enforces immigration laws.

Finally, the current outsourcing system whereby a recruitment firm is the company that a migrant worker has his or her Visitor Pass (Temporary Employment) attached to, while they are outsourced to another company where they spend the vast majority of their working hours, serves only to deflect responsibility. While recruitment firms can play a big role in sourcing migrant workers on behalf of end-employers, end-employers must take charge of the migrant worker’s welfare and be the firm that the migrant worker’s Visitor Pass (Temporary Employment) be attached to.

The company named in the VP(TE), its directors and significant shareholders will be responsible for the migrant workers’ welfare and maintenance of legal status. Violations – including delays or shortfalls in paying wages – should result in progressively larger fines, increased levies, to complete bans on hiring migrant workers. For larger institutional shareholders, this would add a corporate governance overlay onto migrant labour dependent firms and push towards a Malaysian B10 first hiring policy and automation drive. 

Difficult Choices

Our problem with migrant labour is an important piece of the puzzle of Malaysia’s ongoing entrapment in middle-income status. The problem has been diagnosed multiple times in recent years, and the solution is also quite clear: in every five-year Malaysia Plan since 2006, if not earlier, there has been clear articulation of the need for Malaysia to move away from labour-intensive industries, and the need for greater productivity through investments in digitalisation, automation, and other technologies that reduce the need for low-skilled labour.

And yet, the recent 12th Malaysia Plan reiterates the same set of familiar issues and challenges that have plagued our economy for many years: low productivity, low quality of investments, slow structural transitions, limited gains from global value chain participation. Reluctance in mechanising or using labour more productively – for example in the palm oil industry and the construction industry – have led to a low-skills equilibrium which will be painful and difficult to break.

Hence, a comprehensive migrant worker policy reform must not only involve ‘sticks’ or penalising continued reliance on low-skilled migrant labour, but also  effective incentivisation of automation and higher productivity. For example, as proposed by BNM, additional levies on hiring foreign workers can be channelled into funding applied research for specific industries, to fund start-ups that develop solutions for improving productivity in targeted sectors or to compensate for increased tax incentives targeting companies that invest in customised mechanisation and automation solutions.

Nevertheless, change will be hard. An entire ecosystem involving a diverse range of stakeholders has been built that thrives on, and profits from, reliance on migrant labour. Difficult choices lie ahead, if we intend to finally wean Malaysia off the cheap drug of foreign labour: companies and consumers alike will complain of rising costs, policymakers may be tempted to postpone tough changes particularly if there is a risk of operations moving out of Malaysia, civil servants may balk at the challenge of implementing stringent regulations and closing off loopholes – in short, it won’t be easy.

Decisionmakers will need to stand firm and build the necessary coalitions to push through policy changes. Otherwise, we will continue to lament the same issues for decades to come, while other developing countries increasingly surpass us in productivity, innovation, and human rights reputation.

The Centre is a centrist think tank driven by research and advocacy of progressive and pragmatic policy ideas. We are a not-for-profit and a mostly remote working organisation.