The Impact on Labour Productivity in Malaysia Industries

Labour productivity is a crucial determinant of economic growth, reflecting how efficiently a nation utilises its inputs and workforce. In Malaysia, persistent productivity gaps between primary and secondary industries raised concerns about the effects of capital intensity, intermediate input efficiency, and labour composition. This study examined the long-run relationship between intermediate input, capital, labour composition (local and foreign), wages, and labour productivity across Malaysia’s major industries. Using the annual panel data from 2001 to 2021, the analysis adopted Fully Modified Ordinary Least Squares (FMOLS) estimation technique to correct endogeneity and serial correlation in cointegrated panels, providing robust long-run elasticities. The results revealed substantial heterogeneity across industries. In the agriculture industry, intermediate input of (0.9132, p < 0.01) and capital (0.3454, p = 0.0227) significantly enhanced productivity, while wages have a negative effect (-0.6978, p = 0.0195), reflecting inefficiencies from low-skilled employment. The mining and quarrying industry showed productivity driven mainly by intermediate input (0.9203, p = 0.0249), whereas capital (-0.4169, p = 0.0836) has a negative effect, indicating overcapitalisation and resource depletion. In the manufacturing industry, the intermediate input of (0.9012, p < 0.01), salary (0.1313, p < 0.01), and foreign labour (0.0482, p = 0.0403) exhibited significant positive effects, demonstrating strong complementarities between skilled migrant labour and technology adoption. The construction industry showed significant positive effects of intermediate input (0.7556, p < 0.01) and capital (0.2520, p < 0.01), confirming increasing returns to scale through capital deepening and efficient material utilisation. Overall, the findings confirmed that Malaysia’s long-run productivity growth is driven primarily by capital accumulation and intermediate input efficiency, consistent with the Solow Growth Model. Policies promoting technological upgrading, mechanization, digitalization, and skill development are essential to sustain productivity towards achieving Malaysia’s Vision 2030 aspirations for a high-income, innovation-based economy.

Labour Productivity, MOLS, Intermediate Input, Capital, Foreign Labour, Malaysia

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