Employment effects of output and technological progress in Malaysian manufacturing

A major factor contributing to the growth in industrial employment in Malaysia was the implementation of the export-oriented industrialisation strategy. With the withdrawal of GSP privileges to the USA, the inevitable loss of comparative advantage in labour cost and the emergence of trading blocs, it is feared that the growth of the export-oriented sectors in manufacturing will be impeded, causing a serious unemployment problem. This fear is compounded by the increasing shift to technology-intensive methods of production which displace labour. This article shows that domestic demand and export expansion exert positive and almost equal influence on industrial employment. Any negative impact on employment due to a shortfall in exports could be neutralised if an appropriate choice of import-substituting and export expansion policies is adopted. Displacement of labour due to the substitution effect of using technology- and capital-intensive production is largely compensated for by the increase in labour utilisation due to the output effect of increased production for both the domestic and foreign markets.