Elasticity of Substitutions between Foreign and Local Workers in the Malaysian Manufacturing Sector
Idris, Jajri and Ismail, Rahmah (2006) Elasticity of Substitutions between Foreign and Local Workers in the Malaysian Manufacturing Sector. Pertanika Journal of Social Sciences & Humanities, 14 (1). pp. 63-76. ISSN 0128-7702
Industrialization has brought many foreign labours into Malaysia. They have fulfilled job vacancies at various levels and the majority of them are at the lower job rank. onetheless, the involvement of expatriates is also of significant. One of the pertinent labour market issues regarding foreign labours is their substitutability or complementarities with the local labours. Job opportunities for the local labours will be jeopardized when they can easily be substituted by these foreigners. Consequently, the unemployment rate among the locals would increase. This paper investigates the substitutability between local and foreign labours at various job categories and with capital. The data from the Manufacturing Survey of 1985 to 1996 collected by the Department of Statistics, Malaysia is used for the analysis. Four job categories covered in this analysis are semi-skilled local and foreign workers, unskilled local and foreign workers. Five sub industries are selected for the analysis, namely, wood-based, paper products, chemical products, non-metallic mineral products and basic metal products. The translog cost function is used to derive the elasticity of the substitutions. The results from this study show that both the local and foreign workers are more substitutes. Further, the study finds that the substitutability or complementarity does not depend on the types of industry but the number of statistically significant elasticity of substitutions is bigger in the light industry.
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