Migration, Automation, and the Malaysian Labor Market

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KEY FINDINGS

• Malaysia has a policy goal of decreasing the number of migrant workers, described in the 12th Malaysia Plan.

• Automation is often cited as a solution to decrease the employment of low-skilled foreign labor, including in the 12th Malaysia Plan. While findings from other countries do suggest that low-skilled migration can indeed lead to less or slower automation, this finding is context dependent and has yet to be studied in the context of Malaysia.

• At the same time, there is a perception that hiring low-skilled migrant workers has adverse effects on the economy, including depressing the wages of Malaysians and decreasing productivity.

• Migrant workers play a vital role in the Malaysian economy, filling labor gaps in low-skilled jobs, particularly in the agriculture, manufacturing, and construction sectors.

• Since these migrant workers are younger than Malaysian workers on average, they will be an increasingly important resource as Malaysia's working age population continues to shrink. This is especially the case when one considers the growth of jobs in an aging society that are not automatable, such as jobs in the care sector.

• Findings in this paper show that migrant workers are more likely to be employed in jobs with routine tasks, making them potentially more susceptible to automation.

• However, the larger Malaysian workforce means that automation will have a greater impact on Malaysian workers. Thus, it is important to ensure that encouraging the adoption of automation technologies is accompanied by active labor market policies (ALMPs) that can support all workers in a changing world of work. These include developing robust lifelong learning systems and an enhanced social insurance system.

• Empirical analysis generally finds a favorable, or no significant relationship between immigration and labor market outcomes of Malaysians, including the wages on Malaysians.

• Given that investments in automation technologies is unlikely to eliminate the demand for migrant workers (although it may change the type of migrant workers required), a future with both migration and automation is likely. To prepare for this future, there are two things to address:

1. The barriers to automation that do not relate to the availability of low-skilled migrant workers, the primary one being the high cost of investing in technology; and
2. The foreign worker management system, strengthening it to be more demand-driven, thus, opening the door to economic migration that can be a "win-win" for both sending and receiving countries.

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