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Malaysia needs an honest look at its labor market

Malaysia aspires to be a high-income economy and "fully developed" by 2020. The government set these lofty goals almost 25 years ago, but recently it has gone further, asserting the country is on track to reach its target for gross national income per capita of $15,000 by 2018, two years ahead of schedule.

     However, labor market realities cast doubt on both the underlying data and the viability of the "high-income" and "fully developed" claims.

     Two issues merit examination. The first is empirical: The undercounting of foreign workers inflates GNI per capita figures. Second, Malaysia persists in using "low road" labor practices, including relying on low-skill foreign workers, many of whom toil in dire conditions. These facts undercut the notion that the country is climbing up the rungs toward fully developed status.

     Malaysia's poor track record in labor protections and welfare complicates its development aspirations from the perspective of human rights and social justice. The dissonance between reliance on low-skill, insecure employment and the country's growing need for high-skill, high value-added production also darken the picture.

     Malaysia's GNI per capita stood at $10,060 in 2013, based on a population of about 29 million. New data on the size of the workforce, however, suggests that average income is grossly overstated.

     The 2010 census reported 2.3 million noncitizens and a 2011 amnesty registered 2.6 million foreign workers. However, the real number has always been thought to be substantially higher, with estimates in the range of 3 million to 6 million. Nonetheless, GNI per capita calculations have relied on a rough baseline of only 2 million foreign residents, predominantly laborers.  

The true picture

In late 2014, Malaysia's human resources minister abruptly disclosed that there were actually 6.7 million foreigners working in Malaysia, of whom 2.1 million were documented and 4.6 million undocumented. These figures have not been corroborated, but no one is disputing them either. Indeed, they were widely greeted as a long overdue confirmation of people's perceptions.

     Adding 4.6 million missing workers to the denominator of GNI per capita blows the official statistics out of the water, reducing Malaysia's GNI per capita to around $8,850 for 2013.

     GNI per person is supposed to reflect a country's productive capacity and average national income. The number should be as accurate and defensible as possible to allow for an honest appraisal and informed policy responses. The Malaysian government, however, seems locked into selling assurances that its citizens will soon attain "high-income" status.

Squeezing labor

Beyond this empirical quandary, and more fundamental to Malaysia's development, we must ponder the state of labor markets and institutions. In this area, the country often seems to be moving sideways or backward, not forward.

     Production of goods and services in Malaysia largely depends on low-skill, low-wage, overworked foreign labor. Subcontracting and outsourcing are rife, with labor contractors and manpower agencies constituting a powerful industry. This has blurred accountability and weakened organizational coherence, as many workers are not contracted by company owners. This inevitably leads to high staff turnover and job insecurity. The system thrives on extracting long hours from workers and regimenting their lives. It also inhibits training and innovation.

     There is a lack of official monitoring and public disclosure, and a paucity of independent research. Still, investigative journalists and labor advocacy groups have in recent years revealed the plight of migrant workers in Malaysia, notably in reports by Channel NewsAsia and Al-Jazeera.

     Last year, Verite, an international labor rights group, released a landmark report on forced labor in electronics manufacturing, Malaysia's main export industry. The report further underscored the prevalence of unfair and regressive labor practices. Verite confirmed its findings with methodical, meticulous surveys, applying the International Labor Organization's definition of forced labor.

Rampant abuse

The overarching conclusion: One-third of foreign workers in the electronics sector are subjected to conditions of forced labor. Among the salient features are high recruitment fees and resultant debt, passport confiscation by employers, immobility due to work permit rules, and widespread recruitment by third-party labor contractors.

     It is difficult to see Malaysia effectively promoting high value-added production and legitimately joining the ranks of developed nations while these practices persist.

     Laws and regulations certainly need to be expanded and enhanced, particularly to promote security, along with productivity. A general minimum wage finally came into effect in 2014. No major increase in unemployment was registered, although it is uncertain whether this was due to a tight labor market or noncompliance with the minimum wage. In any case, due to Malaysia's definition of full-time employment as 48 hours a week, compared with the international standard of 40 hours, the minimum wage amounts to a meager $1.15 per hour.

     Many of the laws on the books are inadequate, such as those governing overtime. Labor laws generally do not distinguish between citizens and noncitizens; all are entitled to equal rights and protections. But lax or prejudicial enforcement abets the exploitation of vulnerable workers.

     It will certainly be difficult to wean Malaysian industry from its dependency on cheap foreign labor. Employers often claim, plausibly, that migrant workers want to work overtime and on weekends. However, this reflects a vicious cycle: Indebted foreign workers demand overtime to send money to their families and to repay recruitment and permit fees imposed by the system. Employers are more than happy to profit from this arrangement.

     Malaysia's quest to be a high-income economy and a fully developed nation must chart a path away from production based on low-skill foreign workers and regressive labor policies. 

Hwok-Aun Lee is a senior lecturer in development studies at the University of Malaya.

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