Economic implications of ASEAN integration for Malaysia's labour market

This paper examines the implications of the formation of the Association of Southeast Asian Nations (ASEAN) Economic Community (AEC) in 2015 on Malaysia’s labour market. The discussion centres on the nature of the structural change that Malaysia has experienced, especially since the 1980s, and how that has impacted on its labour market. Integration into ASEAN markets has obviously helped Malaysia enjoy the synergies of regional coordination. Although Malaysia’s economic growth has been steady, the onset of deindustrialization before a shift to higher value-added activities has impacted somewhat negatively on per capita income growth rates since 2000. Although it is typically part of structural change for manufacturing’s share of gross domestic product to rise and fall, evidence reveals that Malaysia is facing premature deindustrialization, with a slowdown in labour productivity. In particular, trade performance since 2000 has impacted somewhat negatively on the labour market. Not only has the trade performance of manufacturing been falling, manufacturing labour productivity has slowed, with key sectors, such as electric–electronics, textiles and transport equipment, showing either negative or low productivity growth since 2000. Foreign low-wage labour has largely helped Malaysia maintain its trade competitiveness in low value-added activities. Despite the introduction of minimum wages in 2012, real wages have grown little in the manufacturing sector, which is the largest employer of low- skilled foreign workers. Weak trade unions have not helped. Although unemployment and inflation have remained low, the preoccupation with low-end activities has restricted per capita income growth.