Friday, April 22, 2005

Labour Shortage Exposes Inefficiencies in the Economy.

Lets face it; we are a country of immigrants. Most of us can trace back our roots from other than the Malay Peninsula. Even our some of our Royal families have roots from other parts of Malay Archipelago; Selangor royal family traces back its history from the Bugis of Sulawesi and the Negri Sembilan royal family from Sumatera. Even Parameswara was not born in Malacca.
Unfortunately for the latest group of immigrants, things are not so rosy, they are treated with disdain, reserved those jobs that the locals don’t want, the lowest possible wages and for those without valid permit, being called with four letter word – PATI, short for pendatang asing tanpa izin.
You would see most of these immigrants in the city working in all sorts of jobs – from construction to cleaning offices. The wages they get have always been among the lowest, about RM300 to RM500 a month. Small wonder that most of them couldn’t afford to rent a room. Their willingness to accept low wages acts as anchor to the general wage level; employer could simply make local worker redundant and then subcontract the work to a local company who tendered the lowest cost for the job. Incidentally these subcontracting companies employ foreign workers who get low wages.
Just drive a little bit further from the suburbs of KL to Puchong, Meru or Johan Setia outside Klang, you will see where ordinary factory workers lives – wooden houses, jam packed and Spartan. These are the areas where most new immigrants live. Rent is much cheaper, and they are among their own people. Achehnese, Javanese, Madurese, Bengali, Champa and perhaps a dozen other groups separated by their mother tongues. These immigrant workers work in factories, supermarkets and restaurants by day. Some of the more enterprising ones set up small businesses by night, as traders at night markets supplementing their meagre income.
Without doubt the country benefit tremendously from hard working and enterprising immigrants – they provide endless supply of cheap labour and their small businesses keep inflation low. It is well known among locals that immigrant traders will offer deep discounts on their goods and services.
Most Malaysians resign to the immigrants competitive nature by upskilling themselves and not competing for jobs that have become the domain of the new immigrants. Malaysian youths do the best they could, attend tertiary institutions, get certified and look for jobs with higher pay.
Who could live on RM500 a month these days?

When some smart policymaker in Putrajaya says that its time to crack down on illegal foreign workers, he or she might not have the slightest idea this would expose a serious flaw in the Malaysian economy. That is some sectors of the economy does not reinvest some of the profits to improve efficiency – hence uses a lot of unskilled cheap labour to survive. Or was the crackdown a deliberate policy?

Let me give some examples of inefficient sectors.
Restaurants – most ordinary restaurant in Malaysia you still have the luxury of full service, waiter taking order, etc and the price of roti canai is still 60sen each. Did you notice that when you go to McDonald or KFC you would have to stand in queues to get your food and pay at the counter straightaway?
Agriculture – big operations run by listed companies may have thousands of hectares in its management. Most of them are efficient, but they still pay low wages to their workers, because they can and foreign workers make the bulk of their workforce. When the illegal foreign workers left, no local want to work for them because of low wages, and they cant afford to pay more. Now we know that they are inefficient as well. The smallholders, where their land size is about one or two hectares, its simply too small and uneconomic. Farmers would send their children to the cities to look for other jobs. This is okay if farmer is still able to work on the land to produce food. But when he is old, the children would have their own lives and jobs in the cities, the land would become fallow and neglected, and we starting to feel the effect in the form of higher food prices – fruits and vegetables. This is what is happening in most kampungs.
Retail sector – go to any shop and department store, you would be chased by sales assistants or house detectives, either all Malaysians are thieves or they have nothing to do. Wouldn’t they be better be employed elsewhere? Hypermarkets help shake up this sector, but more efficiency could be achieved by facilitating online business for smaller players.
Service sector – some service sector are inefficient, just go to the bank to withdraw money or make bank draft and you would find out after long queues, endless forms and two levels of approval. Government sector is bad in this regard; no one at the front counter is empowered to do anything, rules change every now and again, the penchant for endless forms and endless higher-level approvals. I still cannot figure out why we have to change our identity card twice for the past 10 years. New Zealanders and Australians don’t have identity cards, only driver’s licence if they need to drive. Our justice system needs reform, at least make it more accessible, credible and speedy.

Imagine the savings that we could have made if some of these sectors are efficient, some excess labour would be redirected and better employed elsewhere. Efficient sector and industries would be able to offer better wages for its workers.
We would suggest that the government NOT to bring in more guest workers from Indonesia, Pakistan or any other countries. Let the mechanics of free labour market decide how best to use our scarce resources, in this case – labour. If any firm believes that labour is cheap in Indonesia or Pakistan, let them set up factories there. Importing workers from these countries means that we are depriving them of their labour and exporting inflation (foreign workers send remittance home, which increase demand in their home country while production stay flat, hence prices increase). What these countries really need is investment.
A genuine shortage of labour would normally be followed by wage rises, and more people would enter the labour market. Some inefficient industries would cease operation or invest more in capital-intensive machinery to increase productivity. In our recent history, economic boom is followed by rampant influx of guest workers (legal or illegal). Employers manage to keep prices down by employing foreign workers. Local workers missed out on the fruits of expanding economy could have provided – higher wages.
Whether these foreign workers are genuinely cheap is open to investigation. I remember a few years ago when I was working at a new department store on Puchong. There were more than enough local applicants for the sales assistant jobs, which paid RM500 a month. Yet my bosses brought in 30 Bangladeshi men who didn’t speak Malay or English to work as sales assistants. These guest workers need housing, food and transport to work as well as the initial cost of airfare from Dacca. Does it make sense? Not to me.
I still believe that foreign workers are more expensive than local workers. Look at the recent example on where there is an advertisement for maid that cost RM2950 for the first 3 month paid upfront. Just imagine that, the maid has to endure 3 month without pay, yet the agency reap commission. Ethical?
In my experience living in the West, I have never met people who employ full time maid in their household; some employ part time home help, who are paid on hourly basis. Notice the term here, home-helper instead of maid. Most people would rather spend quality time with their spouse and children and do things with them, household chores included.
In the economic sense, does employing a maid economically efficient? Not in my view, it would make more sense if one of the parent either husband or wife stay at home and be a full time mother/father, building a lasting and meaningful relationship with their children. Employing a full time maid for RM500 a month to do household chores and keeping an eye on the children is just a waste of human resources, that maid would contribute more to the economy working at a factory. The same could be said of employing foreign workers to do menial jobs.
Why don’t we invest some money in capital intensive and efficient machinery to replace workers?
Noor Yahaya Hamzah

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