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MALAYSIA/THAILAND: Possible effects of tighter rules for migrant workers

Table of Contents

  • Fears of international transmission are likely to cause both countries to tighten rules on foreign worker flows and working conditions.
  • Short-term effects could include production disruptions that become more pronounced as economic activities pick up, as well as reputational risks for firms if the new rules are implemented unevenly.
  • Longer-term, should these measures take root, more lower-cost manufacturers could see an increase in production costs and consequently a greater incentive to move to neighboring countries.

Apprehensive that international transmission could result in new outbreaks, the governments of Malaysia and Thailand may take significant steps to tighten their controls over migrant workers. Aside from Singapore, these two countries are the most dependent in the region on overseas labor; Indonesia, Cambodia, Myanmar, Laos and the Philippines are the net exporters. In Thailand, agricultural workers or those in seafood processing, mainly from Myanmar and Cambodia, earn an estimated USD 3 – 6 per day, compared to the minimum wage of USD 10. Pay differences for Malaysian workers are not as stark, but the labor system is more rigid, which causes domestic firms to turn to migrant workers.

MALAYSIA/THAILAND: Possible effects of tighter rules for migrant workers 1

Over the past two decades, both countries have undertaken sporadic efforts to introduce reforms in how their economies use migrants and the protections that they provide workers. However, the disease outbreak is providing new and possibly longer-lasting incentives for their governments to pursue these changes.

In the past few days, Malaysia has seen a spike in new Covid-19 diagnoses, the highest since early May, mainly from immigration detention centers and construction sites that mostly employ foreign workers. This week, the Malaysian government announced that all employers of foreign workers must by 1 September provide them with proper housing, expanding the coverage for this requirement from the mining and plantation sectors. Thailand is also reporting the bulk of its new cases to be new arrivals from abroad, but primarily Thai citizens. Neither Kuala Lumpur nor Bangkok wants to be blamed for failing to deal with this possible source of imported transmission.

On-off migrant worker reform

Both Thailand and Malaysia have every few years attempted to improve the registration and monitoring of foreign workers, or even their working conditions, often following popular pressure to reduce problems such as crime, migrant worker exploitation, corruption or over-dependence on them by certain sectors. However, the incentive for companies to comply with these sporadic initiatives and for governments to strictly enforce them have been weak, as they would have resulted in greater administrative costs for both the government and firms, and increased labor rigidity. Governments have been generally content to neglect the problem once the initial political momentum for reforms dissipated.

Today, the pandemic has generated additional short-term pressures on these host countries, from the humanitarian challenge of helping stranded workers to the risk of clusters emerging from foreign worker communities, either from those illegally entering the country or those living in cramped housing. By putting new measures into place, they will be seen as addressing the risk of imported transmission and avoiding the social backlash of not having measures in place to help displaced workers.

Also, registration could allow the government to offload some social welfare and healthcare costs such as testing and isolation that are now seen as part of the so-called “new normal” to private companies, or to implement programs to increase the employment of locals when and where feasible should domestic unemployment remain high and politically problematic among the lower-income groups.

However, stricter regulatory regimes for migrant workers are likely to result in production disruptions in the near term, especially as economic activity picks up and the system lags in both registration and testing. Over the longer-term, greater compliance could lead to higher labor costs.

On the other hand, uneven implementation as in the past may result in unintended consequences. The depressed demand for migrant workers could reduce their pay, cause them to agree to work off-book or subject them to excessive employment fees, thereby worsening the problems that the new rules are meant to solve. In Malaysia, for instance, employers can charge workers for the housing they provide through payroll deductions, which make the laborers vulnerable to overcharging for shelter. These practices in turn generate and sustain reputational risks for foreign firms as they attempt to further diversify supply chains into these countries.

Eventually, more regulation may encourage some industries dependent on these workers to relocate their production to neighboring countries. In this regard, Malaysia may be worse off. Not only does it use more migrant workers compared to Thailand as a share of its overall workforce, but many of them are in sectors that cannot be shifted abroad, specifically agriculture plantations and construction. For Thailand, the largest sector dependent on migrant workers is seafood, which is more mobile (but which can also be more problematic because of the difficulties in monitoring the system); however, it may also force more basic manufacturing to move to neighboring countries.

Thailand: An aging population, low unemployment and sustained economic growth have driven migrant worker demand in Thailand for much of the past two decades. However, a large percentage of them — possibly more than a majority — work almost entirely at the discretion of their employers, who often prefer that they remain undocumented, which leaves them uncertain of their status and open to underpayment and deprivation of welfare benefits such as healthcare or, as the pandemic has shown, financial or other livelihood help. Anecdotally, therefore, many are now taking on informal agricultural jobs. Most of these migrants are from Cambodia, Laos and Myanmar, possibly with an even split between those who are registered and those who work irregularly. Some Thai manufacturers and food processors may therefore eventually shift to these third countries.

Malaysia: Increasing urbanization and a relatively low labor force participation rate are the major contributors to the demand for overseas workers. The International Labor Organization estimates that one-third of the workers in agricultural, manufacturing and construction sectors are migrants. Counting those who are undocumented, the percentage for agriculture and construction are most likely higher — possibly as much as three-fourths of the workers in both sectors are migrants. The government often announces its intent to pursue reforms that would reduce the dependency on migrants; however, this is often followed by complaints from employers of potential worker shortages.

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MALAYSIA/THAILAND: Possible effects of tighter rules for migrant workers

Fears of international transmission are likely to cause both countries to tighten rules on foreign worker flows and working conditions. Short-term effects could include