Published on People Move

South-South Migration: Foreign Workers in Malaysia

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Migration policy has focused on South-North flows in recent years, especially as the financial crisis created havoc in OECD labour markets and immigrants became targets in political debates. However, South-South migration is gaining importance due to various demographic, economic and social factors.

Many developing countries are growing rapidly, while mature OECD countries are slowing down with the weight of demographic and fiscal burdens.  Lower cultural, physical and legal barriers between neighbouring countries are contributing to increased mobility.

There are many regional “magnets” in South-South migration flows. Malaysia, a country which has developed faster and more steadily than her more populous neighbors, presents an interesting migrant destination Exact numbers of foreign workers are difficult to compile and many sources disagree with each other, but the estimates range between 2 to 3 million, approximately 10-15 percent of the labor force. Migrants mostly come from the neighboring countries such as Indonesia and the Philippines. 

The main determinants of the inflow of foreign workers are a combination of economic and socio-cultural factors. Rapid industrialization, stable economic growth, and a smaller population base created high employment levels and tight labor markets. Most importantly, rapidly increasing education levels led the younger generations to reject low-skilled jobs in favor of formal and better-paying employment in the public and private sectors. The first graph below shows the evolution of the educational composition of Malaysian labor force as the share of people with primary schooling (or less) declined from 60% to less than 20%. Yet, the demand for low-skilled workers has not abated which is easily filled by neighboring countries. The second graph shows the educational composition of the foreign workers where those with primary schooling (or less) form the large majority.

A common perception in many destination countries is that foreign workers take jobs away from natives. Our results indicate something quite different: immigration virtually has no impact on national employment levels. On the contrary, influx of migrant workers (in a given sector, region) attracts native workers from other markets into that one (Del Carpio et al. 2013). We also do not find big changes in relative wages across industries but a modest increase for native workers and a sharper decline for existing migrant workers, the main competitors to the newer arrivals. This is another indication of tight labor markets where unemployment levels stay below 5%.

In general, our results show that the main beneficiaries from the arrival of unskilled foreign workers are high school educated Malaysian workers who tend to work as immediate supervisors and have complementary skills to those of immigrants.

What do these analyses imply? One of the key goals of the government is for Malaysia to become a high-income economy. Stable growth and rapid educational improvements are critical to this process. However, this transformation creates labor shortages which can only be filled by low-skilled foreign workers. Without their availability, many firms and, potentially whole sectors, might disappear, taking away the jobs for Malaysians, destabilizing an economy which showed resilience in the face of global crisis.


Del Carpio, X., Karupiah, R., Marouani, M., Ozden, C., Testaverde, M. and M. Wagner. 2013. Immigration in Malaysia: Assessment of its Economic effects, and a Review of the Policy and System. Internal Report to the Ministry of Human Resources of Malaysia.


Caglar Ozden

Co-Director, World Development Report 2023

Ximena Del Carpio

Practice Manager, World Bank

Mauro Testaverde

Senior Economist in the Social Protection and Jobs Global Practice of the World Bank

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