The Importance of Foreign Labour to Malaysia Industries

Malaysia heavily relies on foreign labour, particularly in low-wage economic activities such as agriculture and the informal business sector. Foreign labour is commonly used in construction, plantations, and low-wage services such as gas station attendants, security guards, and housemaids. In 2010, there were approximately 2.0 million registered foreign workers in Malaysia, accounting for approximately 17.0 percent of total employment. If illegally employed foreign workers in Malaysia are included, the figure is likely double or more.

Foreign labourers include professionals, skilled and unskilled workers, and are primarily concentrated in the manufacturing, construction, and agriculture sectors. An extensive use of semi-skilled and unskilled foreign labour will inhibit the use of new technologies within firms since it is much cheaper to engage in labour intensive tasks using older technology. Nonetheless, foreign worker is critical in certain sectors, primarily construction, plantation, and low-end services, because few local workers choose to work in these fields. As a result, foreign worker is required to keep these industries running.

Many Malaysians' job preferences have changed as a result of the expansion of formal education since independence. More specifically, young Malaysian workers with formal education avoided menial jobs such as agriculture and construction in favour of more formal and well-paying jobs in the public and private sectors. As a result, the use of foreign workers gained widespread acceptance, first in plantations and later in other industries that required a large amount of unskilled labour, such as construction and domestic services.

Malaysia's industrialization was accompanied by increased foreign direct investment (FDI) in labor-intensive sectors, necessitating the need for more labour in an already constrained labour market. The government increased flexibility in importing labour from neighbouring countries to work in the growing sectors of the economy, primarily manufacturing but also agriculture and construction. Currently, the services sector is the largest contributor to the country's gross domestic product (59 per cent) and labour force (52 per cent), followed by the manufacturing sector (with about 27 per cent of GDP and 28 per cent of employment share). Third is the agriculture and plantation sector (7 per cent of GDP and 12 per cent of employment) followed by mining and construction (together they make up 9 per cent of GDP and 7 per cent of the employment share).

In conclusion, reliance on foreign labour cannot be avoided because the Malaysian economy faces labour shortages in certain sectors. The presence of foreign workers has been a key factor in many sectors' expansion, particularly among export-oriented manufacturing firms. When it comes to hiring foreign worker in Malaysia, firm size appears to matter and is likely to have an effect on productivity.