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Heavy reliance on cheap foreign labour hinders productivity and wage growth, says BNM

KUALA LUMPUR (March 29): Cheap available foreign labour is the big stumbling block that has hindered the growth of the country’s productivity and wages.

Bank Negara Malaysia (BNM) assistant governor Marzunisham Omar highlighted that the country’s heavy reliance on cheap and easily accessible foreign labour is an issue that needs to be addressed to improve growth of the country's productivity and wage levels.

“We have to tackle this issue because as long as we have unlimited supply and easy entry of cheap foreign labour, we will continue to be reliant on a low-cost model that is not sustainable.

“This will not help us moving to a higher value-added economy that we want. This will not help our workers earn higher wages,” Marzunisham told reporters on the sidelines of a Malaysian Economic Association economic forum here yesterday.

Businesses, too, must rise to the occasion, and commit to higher levels of automation in the country's concerted effort to reduce reliance on low-skilled labour, Marzunisham added.

Echoing sentiments expressed by Marzunisham, Alliance Bank chief economist Manokaran Mottain said the ample supply of foreign labour has put a cap on local wages.

“I would believe that the Government should focus on the wages and more concrete measures aimed at (reducing dependence on) foreign workers. How long are we going to depend on foreign workers?

“If you want higher productivity, or employ more locals, then firms should be given some kind of incentives, which is [currently] lacking,” he said during the panel session.

In BNM’s 2018 annual report released yesterday, the central bank highlighted that Malaysians are underpaid for the level of productivity they are producing.

It said Malaysian workers are paid less than their other regional peers, such as those in Singapore and South Korea.

Labour productivity, as measured by real value-added per hour worked, increased by 3.4% in 2018, lower than 3.5% registered in 2017.

“To illustrate, if a Malaysian worker produces output worth US$1,000, the worker will be paid US$340 for it. The corresponding wage received by a worker in benchmark economies for producing the same output worth US$1,000 is, however, higher at US$510.80,” the report said.

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