Academic journal article The Economic and Labour Relations Review : ELRR

Changing Employment Structures and Their Effects on Industrial Relations in Malaysia

Academic journal article The Economic and Labour Relations Review : ELRR

Changing Employment Structures and Their Effects on Industrial Relations in Malaysia

Article excerpt


After Malaysia attained independence in 1957, its early stage of industrialisation was devoted predominantly to import-substitution industries. This continued throughout the 1960s. Before this, Malaysia had been an agricultural economy relying heavily on primary products of rubber and tin. Over 70 per cent of the workforce was engaged in agriculture and agriculture-related services. At the beginning of the 1960s Foreign Direct Investment (FDI) was still predominantly in the agricultural sector. To attract FDI into manufacturing, legislation was passed, such as the Industries Ordinance Act 1958, which provided tax relief and tariff protection for selected industries. Sizable hectares of land were opened up by the government, with supporting infrastructure, to encourage the opening up of factories. Free Trade Zones, located in five states of Malaysia, were also the location for more industries from the 1970s onwards. In the early stages, European, American and Japanese capital were the main sources of capital. The 1970s, however, marked a shift towards export oriented industries. This was motivated by several reasons which included the New Economic Policy (following a racial clash in 1969) and the unemployment rate, which rose to almost 9 per cent. The Investment Incentives Act 1968 and the Promotion of Investment Act 1986 were efforts in this direction. In the 1980s, an Industrial Master Plan (IMP) was introduced to foster future industrial development from 1986 until 1995.

Between 1982 and 1990, the source of FDI changed with the AsiaPacific region surpassing Europe as the greatest source of investment capital in Malaysia, rising from 64.5 per cent in 1982 to 81.3 per cent in 1990. Singapore, Taiwan, South Korea, Hong Kong and Japan became the principal investors in Malaysia. In terms of new investments, Taiwan accounted for 36 per cent, Singapore for 30 per cent and Japan 25.7 per cent (Macpherson,1992). The majority of these investments were in electronics, textiles, chemical and food products. An important trend in the changing face of FDI is the emergence of small and medium scale enterprises which many believed reflects the influence of Taiwan, where the industrial structure is conspicuously devoid of conglomerates. These small scale industries include the manufacturing of polyglass, fibre, edible oil, ice cream, electrical goods, garments and retreaded tyres. In many states of Malaysia, such as Penang, small industries (with a capitalisation below $750,000) form about 35 per cent of the manufacturing operations (PDC, 1990). During the 1970s, the role of the manufacturing sector expanded rapidly and accounted for more than 24 per cent of the GNP and by 1988, more than 48 per cent of total exports. The number of jobs created by the manufacturing sector exceeded 1.5 million and continued to expand rapidly after the economic recession of the mid-1980s. Manufacturing has continued to be the main source of employment creation. However, the agricultural sector continues to play an important though decreasing role and accounts for over 32 per cent of employment. Manufacturing has increased from 15 per cent of total employment in 1970 to 22 per cent in the 1990. The electronics industry is the largest single employer in manufacturing, followed by wood products and food manufacturing.


The Malaysian labour force comprises approximately 7.1 million of the total population of 19 million. Labour legislation governing trade unions and workers' rights have been circumscribed to ensure a secure industrial environment for investors. Table 1 indicates the percentage of workers in various sectors from 1975 to 1990.

The manufacturing sector increased from 15 per cent in 1975 to 22 per cent in 1990. Employment in the construction sector also expanded from 4.6 per cent in 1975 to 6.4 per cent in 1990. Two other sectors where jobs were created were the retail and service sectors, the latter expanding from 18 per cent in 1975 to 24 per cent in 1990. …

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