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Malaysia, a country of 27 million, is made up of two sections, the peninsula at the southeast tip of Asia and part of the island of Borneo. Most of its people live in the peninsular area. Malaysia is a developing nation, but it is more advanced economically than other Southeast Asian countries like the Philippines, Indonesia, or Thailand. About 11 million of its residents are employed.

Malaysia has seen steady economic growth from 2002 onward. Gross domestic product rose by 5.2% in 2005 and 5.9% in 2006. Although this growth is not as dramatic as in developing countries like China and India, its technological capacities are advanced by comparison. Much of the country’s manufacturing is in sophisticated industries like computer components, electronics, and medical products. Also, services now make up about half of the country’s 10 million jobs, including high-value industries like information technology, business process outsourcing, and healthcare.

Malaysia has higher wages than China or India, but it is also a relatively stable labor environment. According to Malaysia’s Ministry of Statistics, the average manufacturing wage rose from 1,754 ringgit per month (about $520) in June 2006 to 1,806 ringgit per month (about $550) in June 2007. This represents a 3% increase, roughly in line with consumer inflation. Over the same period, the unemployment rate decreased only slightly from 3.8% to 3.4%.

Despite this, the labor market shows signs of heating up. The number of new job vacancies, as collected by the government, rose sharply over 2005 and 2006. This does not count all job openings, but in 2006 it was at over 800,000 – much more than the few hundred thousand who enter the workforce annually. This means there are more vacancies currently than there are employees to fill them. Administrative and skilled technical vacancies made up part of this rise, but new demand for low-level workers was a major contributor as well.

Source: Ministry of Human Resources.

Foreign workers

The rising labor demand in Malaysia has led to greater use of labor from abroad. Most of the country’s two million foreign workers are unskilled laborers from places like Indonesia and Bangladesh. But Malaysia’s industries also have a need for skilled workers from around the globe. The number of expatriates in skilled professional positions in Malaysia increased by 30% from 2005 to 2006. Most of these come from other countries in Asia.

Still, high-tech companies have complained of trouble attracting skilled foreign workers because of bureaucratic red tape. In September 2007, the Department of Immigration announced it was simplifying the entry system as of January 1, 2008. One of the main changes will be to streamline the process for issuing skilled worker visas and cut the standard waiting time from 14 days to 7 days.

Labor relations and wage systems

About 15% of Malaysian workers are unionized. Relations between labor and management have been fairly calm over the last several years, with only 25 strikes between 2001 and 2005, according to the Department of Industrial Relations.

The government of Malaysia has a longstanding policy of opposition to a minimum wage. In some cases, wage councils exist to establish wage standards for a particular industry. Only about 1 in 10 workers are covered by these wage councils. In July 2007, the Malaysian Trades Union Congress (MTUC) demonstrated for a minimum wage of 900 ringgit per month (about $267). However, the government continues to insist this is not necessary.

Many domestic Malaysian companies have traditionally given annual raises to employees on a seniority basis, regardless of performance. To replace this, the Malaysian government has encouraged Productivity Linked Wage Systems (PLWSs) to gradually replace seniority. In these systems, employers give out variable extra bonuses to employees linked to productivity, profits, or both. Government employers have adopted this system, and some private companies have done the same. Currently, the government is trying to extend use of the PLWS to more of the private sector. For example, the recent amendment to the Industrial Relations Act encourages including a PLWS in collective agreements with trade unions. However, the system should remain voluntary for the foreseeable future.

Future developments

Malaysia’s Human Resources Minister, Fong Chan Onn, has publicized a number of HR issues his ministry is working on addressing. In August 2006, he announced that an agreement had been made with employer and worker associations to amend the Employment Act of 1955 to cover more workers. Currently, many labor standards under the Employment Act do not apply to workers making over 1,500 ringgit per month (about $445). This ceiling may be raised to 2,000 ringgit (about $593). This change would bring more skilled workers and middle managers under new legal protections, such as annual leave and sick leave. However, these amendments have not yet been brought up by Parliament.

Other amendments the government has announced, but not yet followed through on, include strengthening sexual harassment laws by fining employers who do not investigate harassment complaints.

The government is also moving forward with plans to create a “retrenchment fund.” This would take small mandatory contributions from employers and use this money to assist workers whose jobs have become redundant. Both the MTUC and the Malaysian Employers Federation have agreed to this system in principle, and negotiations are underway.

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