Migration, Automation, and the Malaysian Labor Market
Introduction
The publication explores the role of migration and automation in shaping the Malaysian labor market. Malaysia is set to achieve high-income status by 2025, driven by rising educational attainment and a rapidly aging population. More than 40% of the Malaysian population aged 25 and older have at least a post-secondary education, making them less willing to work in low- and mid-skilled jobs, particularly those deemed "dirty, dangerous, and difficult" (3D jobs). Simultaneously, Malaysia is aging quickly, with the working-age population expected to decline. This necessitates utilizing various sources of labor, including women, youth, and migrant workers.
Historical Context and Current Challenges
Past studies indicate that migrant workers have played a crucial role in addressing labor market imbalances and filling low-skilled job shortages. They complement Malaysian workers and contribute to creating jobs for higher-skilled Malaysians, enhancing wage premiums (Özden and Wagner 2014; World Bank 2015). Migrant domestic workers have supported female labor force participation (KRI 2018).
Despite these benefits, there is strong sentiment in Malaysia that hiring low-skilled migrant workers has adverse effects on the economy. The 12th Malaysia Plan (2021-2025) aims to reduce the number of migrant workers by promoting local participation and automation. The government cites concerns about reduced incentives for firms to invest in technology or higher-value activities, lower productivity, and depressed wages (Ang, Murugasu, and Chai 2018; BNM 2021).
Evidence and Analysis
While there is limited empirical evidence supporting the adverse effects of hiring low-skilled migrant workers, studies suggest that the impact on wages is small and positive for better-educated Malaysians. An increase in foreign worker employment does not significantly affect the overall labor productivity or capital intensity (Tan and Ng 2018).
Automation is often proposed as a solution to decrease dependency on low-skilled migrant workers. However, research findings on the impact of automation on employment are mixed. While automation displaces low-skilled, blue-collar workers performing routine tasks, it also increases employment in complementary jobs (Humlum 2019; Acemoglu et al. 2023). Studies in Spain and France show that automation can lead to overall employment increases (Koch, Manuylov, and Smolka 2021; Aghion et al. 2021).
Conclusion
The aging population and rising educational attainment in Malaysia present a complex challenge for the labor market. While migrant workers have historically filled labor shortages and contributed positively, there is a need to balance these benefits with the concerns raised. Automation offers a potential solution but requires careful consideration of its impacts on different segments of the workforce.
