How new recruitment rules will impact Malaysia’s economy

Arina Sofiah, an HRO (Human Resources Officer), has conducted industry interviews to reveal how the new recruitment rules will affect the skills gap, purchasing power, and the demand for zero-cost hiring.

Malaysia has temporarily eased its rules on hiring foreign workers in the first quarter of 2023, in a bid to facilitate the entry of foreign workers in specific sectors with high demand, namely:

  • Manufacturing,
  • Construction,
  • Plantations,
  • Agriculture, and
  • Food & beverage

Datuk Seri Saifuddin Nasution Ismail, the Minister of Home Affairs, has announced that the move to increase the number of foreign workers is expected to boost Malaysia’s Gross Domestic Product (GDP) by approximately 1%.

To facilitate the increase of foreign workers, the Malaysian government has introduced the Relaxation of Foreign Workers Employment Plan. This plan enables employers to hire workers from 15 source countries without the need to fulfill employment and quota qualifications, provided they have been granted exemptions and conditional approval by the government. The selection of workers will be based on the employer’s specific needs and capabilities. This plan will be in effect during the first quarter of 2023.

So what does the easing of rules mean to the sector impacted, and what are some aspects to look out for? Diving deeper into this, Human Resources Online spoke to an HR leader and two legal experts to get a more comprehensive understanding of the implications of this decision.

A welcome relaxation amidst ongoing sectoral challenges

Selangor Dredging Berhad (SDB), a lifestyle property developer, has expressed its approval of the rule relaxation from an HR perspective.

According to Siti Rahmah Zainol Abidin, the Human Resources Manager, the property and construction sectors have been experiencing a shortage of workers, particularly during the COVID-19 movement restriction period. This shortage has continued even after the pandemic, especially in low-paying jobs.

“This was a segment that was mainly filled by foreign workers – so it is not like the interest in these jobs has dropped, rather a whole segment of the foreign workforce was no longer here,” she says, citing the phenomenon of foreign workers returning to their families, and others who faced trouble getting approval to return to Malaysia.

One of the major challenges faced by impacted sectors is the perception of low wages associated with manual jobs, which has resulted in many Malaysians being unwilling to take up such jobs. As a result, employers have had to rely on hiring foreign workers to fill these positions.

Due to the shortage and difficulty faced in getting foreign workers, companies have tried to advertise these jobs to locals. Solutions include looking at temporary workers instead of full-time, accepting higher turnover from contingent workers as they move on to further their studies, or to other jobs, and to automating their operations – such as how some fast-food chains and plantation companies are embarking on.

New challenges have emerged on the horizon, as Siti has noted. The pandemic has resulted in employees gaining a fresh perspective on work. Nowadays, job seekers are looking for companies that prioritize a great work culture. They desire jobs that offer greater flexibility, are provided by companies that prioritize their wellbeing, and offer opportunities for career growth, recognition, better compensation, and benefits.

The emergence of the gig economy, new technologies, and recent trends have also brought about significant disruptions in the job market, particularly for positions that are traditionally considered low paying.

As an illustration, individuals who were previously earning a monthly wage of RM2,000 can now make the same amount of money, if not more, by working as ride-sharing drivers. Siti explains that the flexible work hours and location, along with the simple objective of transporting passengers from one location to another, make this type of work highly attractive. Drivers can choose their preferred working areas and hours, and they are not answerable to a boss.

In this scenario, companies – including those in the property development, hospitality and construction industries – continue to face difficulties in filling up job positions that are considered as low-paying jobs.

Ruling provides areas of opportunities and growth

In addition to addressing the talent shortage in affected industries, Siti believes that there are other opportunities for employers to take advantage of during Q1 2023, with the foremost being the opportunity to bridge the skills gap.

She explains: “Some of the gaps that can be addressed through foreign workers include technical skills, especially from foreign workers with specialized technical skills, such as engineering or IT; language skills from foreign workers who speak multiple languages to communicate with a diverse range of stakeholders; and to address the shortage of workers in certain industries that are facing shortages of local workers, such as agriculture and construction, in which foreign workers can help to fill the gap.”

Such a development also, in her view, contributes towards the building of a world-class workforce.

Addressing this requires recruiting from non-traditional labor pools, by providing training, and collaborating with educational and training institutions to improve graduate employability, as well as hiring foreign talents or locals who have overseas working experience.

For example, SDB’s hospitality arm – Hotel Maya in Kuala Lumpur across KLCC – is spearheaded by its GM who has experience working overseas, including in Singapore. As a result, she has brought in numerous global best practices to the hotel and implemented processes that have resulted in greater productivity, efficiencies, and higher guest satisfaction levels.

As such, Siti addresses how to strike the right balance between upkeeping a company’s local workforce, and bringing in foreign workers to meet business needs.

“We believe that the term ‘glocalisation’ (globalisation + localisation) is being brought to life in an increasingly competitive economy.”

As she explains, in property development, the developer could outsource, say, the architecture aspects to world-renowned architects who may be more experienced, talented, and have a global view of the architectural scene. Once the blueprint is set, the local team could then take it on, and build accordingly given their knowledge and expertise of the local environment.

How the decision impacts the bigger picture of economic growth

Mohammad Adzam Khodzin, a Senior Specialist Consultant in Industrial Relations and Human Resources at ADAMAS Integrated Venture PLT, brings with him experience in arbitrations and mediations, collective bargaining, and the implementation of terms and conditions of service. He views the decision to ease the rules on hiring foreign workers as a relief for employers in the five affected industries.

However, he takes pains to point out the impact of the decision beyond the five industries that are benefitting from the measure.

Firstly, according to Adzam, this decision does not appear to reduce employers’ manpower costs on foreign workers’ recruitment as most employers use foreign workers’ recruitment agents to acquire their supply of workers. As such, the fees charged by the agencies does not seem to be reduced by the relaxation. “Therefore, the relaxation of this rules would benefit foreign workers’ recruitment agents rather more than it would the employers,” he points out.

While the easing of hiring rules may aid in the revitalization of crucial sectors and industries in Malaysia, thereby bolstering the economy as a whole, Adzam warns that it does not appear to provide immediate economic relief to individual Malaysians who are unemployed.

“The recent pandemic caused the enforcement of MCO in March 2020. The year 2020 was also the year where the new generations of workers were to enter the employment market – Gen-Z, specifically, as the year coincided with the first batch of Gen-Z graduating from tertiary educations.

“Unfortunately, employment opportunity was scarce due to the pandemic.”

The problem has been compounded by the pandemic, which has caused a significant number of Malaysians to lose their jobs, thereby resulting in a larger pool of unemployed individuals. Consequently, employers now have access to a vast labor market.

Nevertheless, the pool of available labor remains costly because those who lost their jobs during the pandemic are likely to demand at least their previous salary, which was likely already in the higher salary bracket. This is particularly true considering how Gen-Z places a high priority on meeting their financial needs.

Hence, employers are left with the option to employ foreign workers, which allows for slightly lower costs.

“Still, while the capability to acquire sufficient cheaper manpower expediently would enable employers to improve productivity, such increase in productivity does not contribute to the strengthening of Malaysian economy in general if the purchasing power of general Malaysians is still low.”

With the unemployment rate among Malaysians still high, and those who are able to secure employment earning lower salaries, Malaysian purchasing power may not be strong enough to balance the economic equilibrium required by the country to revive and strengthen the national economy rapidly, Adzam foresees.

For instance, the benefits package offered to foreign workers may differ from that of Malaysian employees, and this may include contributary factors to other economic sectors such as medical care, retail, and housing amongst others.

“The demand for those sectors, merely relying on foreign workers purchasing power, is unwise.”

Consequently, employers may eventually be burdened with a product surplus that would force the economic mechanism to reduce their price values of their products, potentially ending up with high manpower and operational costs.

Important steps in the execution process

Experienced HR director and Co-Founder of Malaysia HR Forum, Arulkumar Singaraveloo, offers advice on the effective implementation of this policy decision, ensuring that the process is carried out thoughtfully and ethically.

Arulkumar Singaraveloo agrees that the decision to ease the hiring of foreign workers may be necessary to address the severe labor shortage in Malaysia. However, to prevent any lapses, he cautions that applications and the capacity of employers must be thoroughly vetted to ensure that foreign workers are not subjected to forced labor.

He adds: “One aspect which the Government must not give in is the need to have the accommodations approved and ready prior to the application or at least get an undertaking from the employers to have the accommodation ready and approved by a specific period before the arrival of the workers.”

Further, the Government should ensure the workers recruited are hired on zero-cost basis as enshrined in the Protocol of 2014 to the Forced Labour Convention of which Malaysia is now a signatory.

As Arulkumar elaborates, giving employers a blank cheque to hire by bypassing the quota requirement may be counterproductive to the efforts undertaken to eliminate forced labour practices. “If the employers do not have the capacity to ensure compliance to ILO’s guideline, then it may be risky to even allow them to recruit the foreign workers.”

Overall, employers could take the opportunity to fill their labour gaps immediately and return to pre-pandemic levels within a short time frame. However, it is important to be wary of those employers or parties who may exploit this opportunity.

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Credit source: Malaysia