Foreign workers and productivity in an emerging economy: The case of Malaysia

Jacob A. Jordaan

doi:10.1111/rode.12334

Abstract

AbstractMany developed and developing countries are experiencing large and growing levels of international migration of labor. However, the large majority of research on the economic impact of inflows of migrant workers on host economies focuses exclusively on developed countries. In this paper, we address this gap in the literature by examining migrant‐induced productivity effects in the emerging economy of Malaysia. Importantly, the Malaysian case is typical for many Asian economies where, next to high skilled foreign workers, large numbers of migrants consist of low skilled workers that are employed in host economies on a temporary basis. Using detailed industry level data for the period 2005 to 2009, we find that both high skilled and low skilled foreign workers generate positive productivity effects in Malaysian manufacturing industries. Furthermore, our results identify a strong presence of industry heterogeneity, as the effects of foreign workers, in general, and low skilled foreign workers, in particular, are pronounced in labor and assembly intensive modern industries with a strong export focus. This indicates the importance of foreign workers for the contemporary international competitiveness of the Malaysian manufacturing sector. As such, our findings provide important new input to the debate on the role of low skilled foreign workers in processes of development of the Malaysian economy.

Highlights

Recent decades have witnessed large and growing levels of international migration
When we distinguish between the shares of high and low skilled foreign workers, we find that high skilled foreign workers create a positive productivity effect only in low productivity industries
By analyzing the case of Malaysia, we address a gap in the literature that is focused strongly on identifying positive impacts in developed economies

Summary

| INTRODUCTION

Recent decades have witnessed large and growing levels of international migration. The total stock of migrants in OECD countries has surpassed 113 million, whereas in Asia the stock of migrants is more than 71 million, surpassing the number of migrants in the European Union (OECD, 2014; United Nations, 2013). For the United States, Borjas (2003), and Borjas and Katz (2007) examine the impact of migrants at the national level using skill/experience categories in which migrants and native workers are perfect substitutes, finding evidence of substantial negative effects. Most studies that identify positive productivity effects from migrant workers in developed economies link these effects to the presence of high skilled foreign workers. It is less clear whether low skilled foreign workers generate such effects.

| LITERATURE REVIEW

| EMPIRICAL FINDINGS

Findings

| SUMMARY AND DISCUSSION