I Poi i RESE \RCH WORKING PAPER 2053

# Summary findings

'T'he cmerging economies of Singapore and Malaysia have labor markets with large foreign components because excess labor demand was for a long time met by foreign workers. Immigration policy to manage the inflow of expatriate labor in the two countries consists of highlaN regulated work permit systems that differentiate workers by nationality, skill level, and sector of activity. The associated permit fees vary across these parameters.

Has immigration policy effectively managed foreign labor flows? These two countries' containmnent of the foreign labor force at a time of rapid, sustained growth suiggests that it has.

It is not enorigh to establish a stable macroeconomic climate with favorable investment incentives (as Kuwait has learned). In Singapore and Malaysia, complementary measures help make their immigration policies effective. Those measures include nationalization policies that limit opportunities for expatriates, institutional capacity to implement and enforce policy, a macroeconomic environment conducive to growth and job creation, and wage and employment policies that are mutually reinforcing.

Trends in emiployment composition in both Singapore and Malaysia SuppOIrt the assertion that fofeigni labor policy effectively targets worker-s with skills at both extremes of the scale to fill gaps in labor demanld unmlilet by nationals.

But the news is not all good. A huge informal sector o.' illegal foreign wvorkers in both count]-ies suggests a degree of policy failure.

Household survey data fromn Malaysia show that foreign workers earii less than their citizeni counterparts. Foreign labor shares in labor markets in the Gulf Cooperation Cotillcil (GCCC) countries range from 50 to 90 percent of the total labor force in the context of persistent excess demand for labor concurrent with) emerging unemployment among nationals. Policymakers could look to Singapore and Malaysia for lessons in managing foreign labor. Brtt replicating Singapore's or Malaysia's immigrationi policies alone, without addressing existing employment and pay distortions, max have limited success, given the very different economies and institutional environmiiienlts in the GCC.

- T1his paper a product of the Social and Economic Development Group, Middle East and North Africa Region -is parr of a larger effort in the region to study labor issues affecting development and growth. Copies of the paper are available frce from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Alexandra Sperling, room H4-06 S, telephone 202-473-7079, fax 202-477-0432, Internet address asperling(a worldbank.org. Policy Research Working Papers are also posted on the Web at http://www.worldbank.org/html/dec/Publicatiouis,fWorkpapers!/lome.html. The author may be contacted at eruppert(&±worldbank.org. February 1999. (38 pages)

_The Policy Research Working Paper Series dissemiinates the findings of work in progress to encourage the exchange of ideas about developtiuent issues._ **_Ani_** _objective of the series is to get the findings oust quickly, eve'n if t/e presentations are less than fdlly polished. Tb papers carry the namiies of the authors and should be cited accordingly. The findings, interpretations, and ConClusiO1s expee'ssCed in t7ins paper are enitirely those of the authors. They do nzot niecessarily represent the vieo' of tbe Wor/ld Bank. its Execultie Directors, o( the countries they represenzt._ Produced bty the Policy Research Disseriniition Cci.tcr