Wages in Malaysia are generally depressed.
Protectionists blame foreign labor as the main cause of that depression. According to them, if we are less dependent on foreign labor — low-skilled mostly — wages will go up. So, they want to kick out as many foreign labor as possible. Even all, for the extremists.
They make that assertion without considering foreign labor are active in sectors mostly different from the ones locals are participating in; there simply not enough locals wanting to participate in the sectors filled with foreign labor.
Removal of these foreigners will no doubt increase wages up as the law of supply and demand demands it, but that is largely true only in those sectors. The problem of wage depression in the larger economy will not be addressed or significantly affected with the absence of foreign labor.
In front of our eyes is a natural experiment to prove that. Indonesia has decided to stop the flow of maid into Malaysia:
JAKARTA, June 25 (Bernama) – Beginning today, Indonesia will halt temporarily sending maids to Malaysia until there are discussions on the review of the memorandum of understanding (MoU) on the matter. [Indonesian Maids To Malaysia Halted Temporarily. Bernama. June 25 2009]
I am confident that while wages for maids will rise, wages in other sectors will remain largely unaffected.
In fact, Malaysian productivity might fall because Malaysians who face high opportunity cost between housework and professional job might not be able to do what Adam Smith wrote in The Wealth of Nations: specialization.
And in economics, besides supply and demand, productivity is a major component in the determination of wages.