Labour Policies and Institutions in the Eleventh Malaysia Plan: Aiming High, Falling Short.

• Author: Lee, Hwok-Aun

1. Introduction

   Malaysia's labour market institutions, policies and practices have largely trailed the nation's progress on other socioeconomic fronts. Labour policy has implicitly adopted supply-side approaches, leaning on skill acquisition, primarily through the education system and on-the-job training, to raise productivity and wages and transmit the benefits of economic growth to workers. Malaysia's laggard pace in developing labour market institutions and meeting global--even regional--norms and standards is demonstrated in its passage of minimum wage legislation only in 2012, later than most of its Southeast Asian neighbours--including lower income countries like Indonesia, Thailand, Philippines and Cambodia. In recent years, a host of other labour issues and deficiencies have flourished in public and policy discourses, which not only show that Malaysia remains some distance behind advanced economies, but also signal how its labour market structures may impede further progress.

   Labour has been an integral component of Malaysia's development planning. From the 1970s through the 1990s, the five-year Malaysia Plans devoted attention to human resource development, recurrently in the context of population growth, sectoral shifts in employment and changes in the occupational profile of jobs. The emphases on workforce growth, education and skill development were undoubtedly timely and important, but policies omitted attention to changing forms and structures of employment--specifically, the rise of contract, informal, casual labour--and did little to redress low-skill migrant labour dependency, which was already flagged as a concern since the late 1990s.

   Labour issues have been steadily covered in the past decade--but remain confined to a narrow framework. Official documents recognize the need for productivity to drive economic growth, and the ways in which persistent dependence on low-skill, low-wage migrant labour detracts from that objective. (1) However, solutions to perennial issues of upgrading skills and value-added are largely devolved to education and training programmes, with inadequate consideration of labour market structures that perpetuate transient and insecure work, and militate against skill development and technological upgrading.

   This paper proceeds as follows. The next section surveys major structural features and policy challenges of Malaysia's labour markets and institutions, according to four themes: (1) productivity, skills and training; (2) wages, work conditions and social protection; (3) migrant labour management; and (4) labour participation, unemployment and fair employment. A brief overview of the Eleventh Malaysia Plan's three key strategies is then provided, which includes comments on overlaps and omissions vis-a-vis the four themes of this paper. This is followed by critical analyses of the 11MP, addressing its strengths and shortfalls. Given the subject's wide range, the discussion is rather broad-brushed, but strives to be specific and to make a contribution to the field, by pointing out major omissions of the 11MP and presenting alternative perspectives.

2. Structural Features and Policy Challenges

   2.1 Productivity, Skills and Training

   Malaysia has steadily cultivated a more skilled and academically qualified workforce, but low-wage and low-skill production persists. From 1980 to 2016, the share of employed population with tertiary education grew from 3.6 per cent to 27.5 per cent, alongside the share with secondary schooling (34.0 per cent to 55.2 per cent), while the share of those with primary schooling or less shrank from 62.4 per cent to 17.4 per cent. Although these changes correspond with an increase in skill level and broader diffusion of knowledge, the extent to which this labour supply progress translates into higher labour productivity depends on the quality of education. Malaysia's achievement in international standardized tests, a consistent and useful reference for basic academic performance over time, gives cause for concern. Between 1999 and 2011, Malaysia's scores in the Trends in Mathematics and Science Study (TIMSS) tests dropped by 79 points and 66 points in mathematics and science, respectively--the widest margins among the twenty-one countries that participated in those years (Mullis et al. 2012a, 2012b). In the Programme for International Student Assessment (PISA) 2009, out of 74 countries, Malaysia ranked 55th in reading, 57th in mathematics, and 52nd in science. PISA's 2014 test of creative problem-solving ranked Malaysian students 39th out of 44 countries.

   Concerns over skill constraints are substantiated by various empirical sources, notably the World Bank's Productivity and Investment Climate Survey (PICS) of 2002 and 2007, both of which reported, from a large sample of companies, that skill shortage was the most widely cited constraint on doing business (World Bank 2005, 2009). Specifically, 40 per cent of companies considered skill shortage as one of the top three constraints. PICS 2002 also noted that 70 per cent of managers marked the dearth of capable university graduates as the biggest constraint on high technology investment (World Bank, 2005, pp. 94-96). These insights enable a broader grasp of Malaysia's lagging development in skills, technology and innovation, which do not simply derive from skill shortage but also the lack of inclination to train. The World Bank's enterprise survey of 2014 found that Malaysian firms are less likely to train their workers--even when compared to Southeast Asian counterparts (World Bank 2016).

   At the macro level, raising productivity has been a policy priority since the 1990s, but Malaysia has actually experienced sustained slowdown in productivity growth over the past decade and a half. As observed by Rasiah (2011), trade performance and productivity growth in Malaysia's manufacturing sector has slowed down post-2000, from an average annual rate of 8.4 per cent (1990-95) and 11.1 per cent (1995-2000) to -1.4 per cent (2000-05) and 2.7 per cent (2005-08). More recently, manufacturing registered productivity growth per year of 1.5 per cent (2008-12) and 3.9 per cent (2012-14) (Malaysia Productivity Corporation 2013, 2015). Rasiah (2011) attributes slow technological upgrading to the reliance on low-skilled foreign labour, lack of performance standards monitoring, talent dissipation partly as a result of ethnic preferential policies, shallow university-industry linkages, and resulting inadequacies in research and development. Tan (2013) maintains that Malaysia has prematurely deindustrialized. Compared to the turning point of mature deindustrialization at about US$10,000 in advanced economies, the shift occurred at US$4,000 in Malaysia, which concurs with the assessment that the country's manufacturing sector may not be adequately established as a springboard for continued economic advancement.

   Arguably, Malaysia should go beyond these conceptualizations and measurements, to define and target productivity on the basis of output per worker, thereby accounting for the critical factor of work time. Output can be generated through productive work over a compact period, or extracted through longer work hours. Measuring output per hour worked importantly complements the simpler metric of output per worker, and sheds light on the quality of productivity and the amount of labour required for a particular task. The endurance of Malaysia's low-skill, low-wage regime derives from less spotlighted labour market institutions and structures that gravitate towards production based on overwork and on utilization of transient and insecure employment, which can undermine productivity. Beneath the widely critiqued and readily observed dependency on foreign migrant labour lie some systemic traits that extract productivity out of long hours in low-skill work, rather than shorter hours in high-skilled operations. The catch-up process of Malaysia's GDP per capita is well documented, but zooming in on GDP per hour worked is more demonstrative of the country's lagging performance in raising productivity (Figure 1).

   Advanced economies, and a few new entrants to the high-income echelon such as the Czech Republic and Chile, have decreased average working hours, while Malaysia generally retains a work regime marked by longer hours (Figure 2). From a wider sample, Lee, McCann and Messenger (2007) find an inverse relationship between per capita national income and work hours. The average hours worked corresponds with the legal definition of full-time employment, which is 40 hours per week according to the International Labour Organization (ILO) convention, and 30-35 in some advanced countries. A downward shift also corresponds with transformation towards generating output more from uplifting skills and technology than from long hours of exertion. The legal benchmark of full time work is consequential in compelling this shift, because overtime applies to labour in excess of the threshold and thus it becomes costlier to depend on long hours and more advantageous to raise productivity per hour. Malaysia has retained this legal baseline at 48 hours per week, which translates into high average hours worked across time.

   The predominance of low-skilled migrant labour on shop floors apparently corresponds with the prevalence of overwork. Research suggests that 75 per cent of employed Malaysians and 90 per cent of employed foreigners work more than 40 hours per week. At the full-time employment threshold--the equivalent of six work days (eight hours per day)--we find a larger gap: 52 per cent of foreigners and 30 per cent of Malaysians work more than 48 hours per week, which is the ILO's threshold for "excessive working time" (author's calculations from the 2009 Labour Force Survey raw data). Given that the data under-samples undocumented workers, it is safe to presume that the state of foreigners working long hours is more severe...