Impact of foreign workers on labour productivity: analysis of firm level data

The majority of foreign workers in Malaysia are unskilled and more than half come from Indonesia. Nowadays, labour productivity is the main concern of firms in a bid to reduce the cost of production and be more competitive. Therefore, the issue is whether foreign workers have an adverse effect on labour productivity in Malaysia. The present paper attempts to investigate this issue using data from 279 companies in 2011 collected by means of a field survey. The companies are located in Kuala Lumpur, Selangor, Pahang, Terengganu and Johor in Malaysia. The labour productivity model is estimated using local and foreign workers, skilled labour, semiskilled labour and unskilled; labour as independent variables. The results show that skilled foreign workers do not contribute significantly to labour productivity. Instead, the unskilled and semiskilled foreign workers have a significant and negative impact on labour productivity.