Impact of the National Policies Upon Malaysia’s Employment Sector


Since gaining its independence from the British Colonial Administration on August 31, 1957, Malaysia has put serious efforts to develop its own nation in all sectors generally in political, economic, and social aspects. Malaysia composes multi ethnic societies which have three major groups categorized as the Bumiputras (Malay and the indigenous group) or sometime referred as "sons of the soils", the Chinese and the Indian. In 1995, its population is statistically estimated 20.69 millions (Bumiputras – 11.95 million, Chinese – 5.29 million, Indian 1.50 million, other 0.64 million, non-citizen – 1.31 million). The medium age of the population is estimated at 22.4 years old. Therefore, every policy formulation has to be carefully studied to ensure that equal opportunity will be derived in order to maintain the stability of the nation as a whole and this would not exclude the labor policy too. Hence, this paper will briefly explore the labor policy trend in Malaysia related to various events on national policy formulation to meet the current and future demands.

Background: Effect on "Divide and Rule" Colonial System

The colonial era was a real setback for the Malaysian society in term of the socioeconomic well-being because the British had imposed a system called "Divide and Rule" where this system was designed to preserve the British interest in the country especially on securing the economic wealth. The implementation of such system had created an imbalance working structure for the local people. Chinese and Indian (immigrants) labor forces were imported to manipulate certain economically productive sectors and this had created a composition of working sector based on race. The Bumiputras were not given a chance to improve their social economic status and were left mostly to concentrate on the agricultural field and certain unproductive working sectors. As for the non-Malays, they dominated manufacturing, commerce, mining, construction, medicine, engineering, accountancy, administrative and managerial position. This was done intentionally by the British due to its political reason. After independent, social economic imbalances among races had turned to be more serious issue, effected from the colonial practice; thus, feeling of dissatisfaction was becoming intense among races. On May 13, 1969, a one-day bloody riot between the Malay bumiputra and the Chinese had occurred and this event became a turning point for the country to give more emphasis on developing the nation with fair distribution of wealth via creating equal job opportunity in all working sectors. As a result, first outline perspective plan was introduced and had highlighted a comprehensive policy named as the New Economic Policy.

New Economic Policy (NEP)

The objective of NEP is to overcome certain social problems such as poverty and unfair distribution of economic wealth among races by means of restructuring the societies; in other word, the policy is to bring the nation into economic well being. Since then, Malaysia has gone through several robust economic developments. Since 1970, real GDP growth has been constantly average at 7.5% a year. Economic sector can no longer be described as the exclusive domain of the single ethnic. Numbers of Bumiputras school leavers have become technically and economically trained graduates. In 1981, Look East Policy was introduced by Prime Minister Dr. Mahathir Mohammad where its objective was to promote the industrialization and modernization of Malaysia through learning, particularly with regard to labor ethics, social consciousness, discipline and managerial skills from Japan and South Korea. This policy highlights the essence of work ethic and efficiency in the working environment. The New Economic Policy was fairly successful in term of guaranteeing the Bumiputras to participate actively in all working sectors; however, after the a tremendous economic progress since late 80’s, more considerations have been given upon emphasizing the right climate for human resources management in Malaysia. The requirements of the future labor force and the relationships between productivity and wages have become a center focus of the recent labor issue in Malaysia. On June 17, 1991, the new main national policy was established named as National Development Policy (NDP) to continue the momentum of NEP.

New Development Policy (NDP)

The NDP have widened certain social values and working climate for the nation’s development in relation to pace up the global challenge of scientific and technological advances. This policy was launched under the framework of the second outline perspective plan (1991-2000) and focussed to make Malaysia as a developed nation by the year 2020. This policy is defined strategically after Vision 2020 was announced by the Prime Minister on February 28, 1991. It is actually a turning point for the Malaysian society to start a new way of lifestyle to become an informative and progressive society. The Vision highlighted several criteria to achieve its aim to make Malaysia a new developed country according to the Malaysian outlook. Part of the visions implies that Malaysia has to create a progressive society with a highly scientific and technological achievement. This requires quality human resources that correlate quality service and higher productivity. As a strategy to achieve such vision, Malaysia has embarked on an ambitious plan to leapfrog into the information age by providing intellectual and strategic leadership.

The NEC and NDP have brought Malaysia to be so successful in term of its socio-economic development with an averaged constant GDP growth of 8% for ten years since 1988. However, this climate does not go along to satisfy the development of labor sector positively. Many labor crises have occurred due to incapable of providing skilled manpower in certain working sector especially the one that relates to science and technological base. The Malaysian government also has given a lot of emphasis’s to ensure that all working sectors e to staff pinching and job-hopping. In addition, inadequate supply of skilled manpower has becoming seriously increased. The demand for highly skilled and technically competent manpower has increased as result of more industry shifts to complex technology-based production processes. In effect, there is a growing independence of foreign workers in certain employment sectors. The tight labor market situation also reflects a rise in wages that is not comparable to the achievement of productivity level.

This year the employment sector is estimated to grow at slower rate of 2.8% to reach 8.39 million of total employment (1996: 3.1% - 8.16 million). The slower rate is effected from the decline of the primary sector (agriculture, forestry, fishing and mining). However, the secondary and tertiary sectors have recorded an expansion with an averaged rate increase of 4.3% to account for 84% of total employment opportunities of this year. With the total labor force increasing at the same rate of 2.8%, the unemployment rate is expected to remain at 2.5% and this rate has been relatively constant since 1995. In relation to the tight labor market situation, the total number of unfilled vacancies is reported to be increased by 13.7% (38,076 vacancies) compared to the 1996’s vacancies in the first eight months of this year.

Based on working sector, employment in the service sector is expected to remain at 47.5% of total employment. This has resulted a growing number of job creations especially in the wholesale and retail trade, hotel and restaurants (27,900 new jobs – 2.1%) as well as transport, storage and communication (22,300 new jobs – 5.4%). Total employment in the service sector increased by 3.1% from 3.87 million jobs in 1996 to 3.99 million jobs in 1997. The manufacturing sector is the second largest of employment, accounting for 27.5% of total employment, an increase of 129,800 person compared to 26.7% in1996. Employment in agriculture, forestry and fishing sector continues to decline from 16.4% in 1996 to 15.2% in 1997. Mining and quarrying sectors remain at 0.5% (43,900 employees).

The economy continues to operate with labor shortages prevailing in all sectors. Shortage of skilled manpower is so transparent in the manufacturing sectors. Based on a study, by the year 2000, the country will need 69,780 engineers and technicians, 92,920 skilled workers in various craft skills and 502,030 semi-skilled workers. It is expected that an annual shortage of 5,250 engineers and technicians and 44,450 skilled and semi-skilled workers will occurred. Based on the Cabinet Committee Report in 1995, skills that was identified as being short supply could be found in industries such as electrical and electronics, information technology, ceramics, chemicals, machinery and engineering, foundry, plastics, textile and wood based industries. Entrance of foreign employees, which are now estimated to be 1.7 million into the labor market, has marked crucial labor crises in Malaysia. Society is facing social disturbance from certain unwanted events portray by these foreigners (legal and illegal workers) against the social value of the local community besides cutting the privileges in job opportunity for the local people. Ethically, Malaysia could not continue relying on foreign labor to generate growth, because this will not benefit the society as a whole in the long run. Due to many problematic occurrences arose from such consequences, the Government on 20 August 1997, announced a freeze on recruitment of foreigners in all sectors with immediate effect except in certain fields that require high-skilled manpower that will benefit the country as a whole.

The robust tight labor market has marked not only increase demand for higher skills but also a significant increase in wages. Based on Statistic Department Monthly Survey on just manufacturing sector (up to July 1997), the productivity growth of 10.8% was still lagging behind the growth of real average wage of 19.9% which has resulted in higher growth of real labor cost per employees. As a conse m, the National Labor Advisory Council (NLAC) has drawn up a set of guideline namely Guidelines on Wage Reform System which would be serving the interests of employees in the unionized and non-unionized sectors, employers and the nation as a whole. The guideline would facilitate the employees and employers to formulate the types of reform system that would be best suit the interest of both parties and the working environment.

The purpose of this guideline is to establish a closer link between productivity and wages. It will also enable employers to provide programs with systematic approach to foster active involvement and cooperation of their employees. In addition, the guideline will ensure a fair share between employer and employee by promoting equity and social cohesion as well as developing improved skill-related path and increasing job satisfaction.

In relation to wages, the guideline indicates that wages would cover a combination of monthly or other frequent payments, annual increments and annual bonus. Wages also should comprise a fixed component that includes basic wages, annual increment and contractual bonus (where applicable) and additional component in the form of variable payment. Variable component is categorized as wage increase based on productivity profit sharing formula. It could be determined in relation to productivity and performance of the individuals, work group or organization. Changes of basic wage have to relate with changes of living cost. The guidelines also give emphasis on two models for the wage reform system and they are categorized as the profitability and productivity models.

Government’s Strategies to Overcome Labor Issues

The recent labor issues have put tremendous pressures for the government to revise its recent labor policy to complement the scenario of the growing economic development in Malaysia. Series of strategies have been drawn up under the Seventh Malaysian Plan (1996-2000). First, industries have been encouraged to shift their operation from labor intensive to capital oriented industry. Second, public and private sectors has to increase the employment of the local people rather than hiring foreigner by expanding the opportunity for women to enter the job market. Organizations are urged to increase the productivity level by upgrading worker’s skill through comprehensive exercise on training and retraining. Third, the education sectors have to play more important role on human resources development in providing skilled and knowledge workers in the future. Fourth, related sectors have to extend their research and development activities especially in the science and technological base. Fifth, private sectors also have to participate actively in the human resource development program to assist the government in providing the in-house training. Sixth, all sectors are encouraged to implement a mechanism to relate the increment of wage with level of productivity. Seventh, the government will overcome certain barriers that prevent the development of labor market by providing information through Labor Market Information System. Eighth, the government will also revise certain labor rules and regulations in order to foster dynamic labor market. Nineth, in term of harmonious labor management relation, management are encouraged to foster a positive value such as loyalty and discipline among employers and employees in order to create a working stable environment. The welfare of the workers has to be equally emphasized in the management policy. Tenth, society as a whole should be oriented toward giving more emphasis to participate in skilled and technical employment.


The country has reached a stage where it has become more critical to deploy and manage country’s human resources with greater efficiency by increasing productivity and ensuring a sustainable economic development and encourage harmonious industrial relations in the organization. It is a prerequisite to the future competitiveness of the nation to ultimately accomplish the success of Vision 2020 by establishing a balanced social economic policy for the multicultural societies according to the Malaysian outlook.

Azman Mohd. Yusof

Labor Policy

Graduate School of Policy Science, Saitama University

25 February 1998