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Malaysian construction is highly dependant on immigrant labour; immigrants account for nearly 70 per cent of its workforce. Although they have aided the sector's rapid expansion, it has not been without costs. This paper examines the impact of immigrant labour on construction. The main finding is that immigrants, being largely unskilled, did not contribute to skill formation. Instead, they accumulated skills on-the-job, which were lost when they returned home. There was no evidence that immigrants displaced domestic workers since they were concentrated in jobs rejected by Malaysians. Furthermore, unlike in earlier periods, legal immigrants were no longer a cheap option, given the regulations governing their employment. They were not used to cut costs per se, but were used because domestic workers were not available in sufficient numbers. Despite the large immigrant presence, the general wage level increased, though admittedly not as rapidly as it might have in their absence. The reliance on immigrant workers has increased the need for supervision and quality control, thereby reducing the savings in cost; nonetheless, immigrants have helped keep costs in check. Surprisingly, rising wages and the continued shortage of labour have not led to a widespread adoption of labour-saving methods. This is partly because productivity increases have managed to outpace wage increases, though this advantage is petering out. Also, immigrant presence has kept wages, as a proportion of total costs, manageable. The over reliance of the sector on immigrant labour is not desirable, especially since the majority is drawn from one source - Indonesia. Any disruption of supply from this source can undermine the Malaysian economy. To avoid this, Malaysia must vary its source of immigrant labour and intensify efforts to attract domestic workers by improving conditions in construction. [ABSTRACT FROM AUTHOR]