By Professor Dato Dr Ahmad Ibrahim
For decades, the Malaysian economic miracle rested on an unstable tripod: export-oriented manufacturing, a booming construction sector, and sprawling plantation agriculture. But there is a silent, fourth leg propping up this entire structure: cheap foreign labour. We have become addicted. From the pre-dawn shifts at mamak stalls to the welding sparks on high-rise condos and the meticulous sorting of palm oil fruit bunches, migrant workers are the invisible vertebrae of our GDP.
Like any addiction, this dependency has come with a crushing hangover. Wage stagnation for locals, a ballooning underground economy, social friction, and a staggering outflow of remittances, billions annually. The COVID-19 pandemic exposed our vulnerability brutally: when borders slammed shut, factories stalled, plantations rotted, and construction sites went silent.
The question is no longer whether Malaysia should wean itself off cheap foreign labour, but how. A sudden “cold turkey” — mass deportations or an abrupt quota freeze — would collapse entire industries. Yet, continuing business as usual is a slow suicide. Talking to experts on the matter, the solution lies in a coordinated, decade-long strategy where government and business move in lockstep.
First, the current work permit system is a machine for producing poverty. It keeps labour artificially cheap and disincentivises automation. The government should replace the outsourced visa system with a single, transparent, non-transferrable digital work permit tied directly to an employer’s audited business licence. No agent fees. No passport confiscation. If labour becomes more expensive, employers will suddenly find automation very attractive.
Second, raise the foreign worker levy annually by a progressive 10-15% for five years, but recycle every sen of that revenue into two funds: a Productivity and Automation Grant for SMEs, and a Wage Subsidy for Local Hires in 3D jobs. The signal must be clear: hiring a Nepali for assembly line work should soon cost more than hiring a Malaysian.
Third, legalise and regularise the millions of undocumented workforces through a one-off, rigorous amnesty programme. Grant them a six-year work pass with mobility rights. Why? Because shadow workers are exploited, pay no tax, and depress wages for everyone. Bringing them into the formal economy allows enforcement of minimum wage and labour laws, instantly raising the floor.
Here is the uncomfortable truth for the Malaysian private sector: you have spent thirty years optimising for low labour costs instead of high value. Many manufacturers and plantation owners treat migrant workers as disposable batteries. If the government raises levies, business must not simply lobby for exemptions. Instead, they must pivot.
The construction industry, for example, still uses manual bar bending and formwork. A switch to prefabricated components and modular construction can cut foreign labour needs by 60%. The Malaysian Palm Oil Board has already shown that mechanical harvesters can replace cutters. The technology exists; the will does not. CEOs must be forced to answer: Why are you still using a human for a task a RM5,000 machine can do?
The classic complaint is “Malaysians don’t want to work in factories or plantations.” No, they don’t want to work under existing conditions – unpredictable shifts, no union, stagnant pay, and zero dignity. Businesses that have shifted to four-day work weeks, onsite childcare, and performance bonuses are now flooded with local applicants. The challenge is not labour supply; it is management failure.
If a job genuinely cannot be automated and requires foreign labour, businesses should voluntarily pay a premium wage (say, 30% above the local minimum) and provide housing that meets basic standards. This would instantly attract the bottom 20% of local workers who currently survive on gig economy scraps.
Weaning off cheap labour will hurt. A phone assembled in Penang will cost more. A plate of nasi kandar might rise by 50 sen. Condo prices could stagnate. This is not a crisis; it is a correction. The alternative is a permanent underclass of migrant workers and a local workforce stuck in service-sector purgatory.
The government has already taken timid steps: the Progressive Wage Policy and the migrant worker levy hike in 2022. But timidity is the enemy. We need a National Labour Transition with binding targets: reduce foreign worker dependence by 30% by 2030, while raising median local wages in manufacturing and agriculture by 50%.
This is not about xenophobia. Migrant workers have built our wealth, and they deserve fair treatment. But fairness also means not building an economy that requires permanent imported poverty. Malaysia wants to be a high-income nation. High-income nations do not rely on low-wage labour arbitrage. They rely on robots, productivity, and well-paid locals. Let us start the detox today. The headache will pass. The high – of a resilient, high-skilled, just economy – will be worth it.
— The author is affiliated with the Tan Sri Omar Centre for STI Policy Studies at UCSI University and is an Adjunct Professor at the Ungku Aziz Centre for Development Studies, Universiti Malaya.
