results from our current study and earlier report (World Bank, 2020) add to the growing evidence that demonstrates a smaller, consistent estimate of around three million foreign workers in Malaysia.

**Our results in this paper indicate that the number of foreign workers in Malaysia was between 2.99 million and 3.16 million in 2017–18.** State and nationality distributions of foreign workers in our estimates are consistent with MOHA data, indicating that our estimates are robust. Nevertheless, we note that the BNM remittance data could potentially underestimate the number of workers in states with low access to money service providers (MSPs), as well as nationalities that have access to alternative money transfer mechanisms such as commercial banking and informal transfer channels. This underestimation could be mitigated over time by BNM’s greater efforts to lower remittance costs and enhance the financial literacy of residents, including foreign workers. In this challenging time of the COVID-19 global pandemic, an expansion of online money transfer services is crucial as a mitigation measure, simultaneously lowering remittance costs and addressing issues of limited accessibility of MSPs among foreign workers.

This paper is organized as follows: the next section briefly paints the landscape of foreign workers, including a survey of available foreign worker estimates. Section 3 presents the data and methodology. Section 4 discusses the results and Section 5 concludes with a discussion on a framework to measure foreign workers in a systematic manner.

# **2. The foreign worker landscape**

**Official statistics suggest that the foreign worker population is hovering around 2.4 million – 3.2 million, but limitations exist.** MOHA reports that regular foreign workers are 1.7 million as of March 2018, based on work permit issuance. However, its estimates of irregular foreign workers are based on its ad hoc enforcement activities, suggesting that four out of ten foreign workers are irregular. Taking these two together leads to a foreign worker population of 2.93 million, including 1.3 million irregular workers, in 2018. The LFS captures some of the foreign worker population, including irregulars, estimating 2.43 million foreign workers in total in 2019, or about 15 percent of the total labor force. Population census-based data of the Department of Statistics Malaysia estimates 3.2 million foreigners residing in Malaysia, but this includes higher-skilled expatriates, their dependents, and all people who were not born in Malaysia.

**Foreign workers have become important to fill jobs.** LFS data depict the magnitude of the foreign workforce in Malaysia’s labor market, albeit imperfectly. Inflows of foreign workers have increased steadily since the 1990s, when the government introduced a system to manage the low-skilled foreign workforce. As shown in Figure 1, the share of foreign workers in total employment increased from 10 percent in 2006–08 to around 15 percent from 2013 onwards. The foreign worker share among the employed youth workforce has increased more rapidly: in 2016 about 26 percent of the total youth employed were foreign workers, compared to about 8 percent in 2006–08.  The share of male foreign workers has expanded faster than the female share: while the ratio of foreign to Malaysian employees remained at one to ten over the decade for females, it increased to two to ten for their male counterparts. This gender divide is likely attributable to the design of Malaysia’s foreign worker system, which has more vacancies for labor-intensive jobs traditionally held by men.

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