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KAI RYSSDAL: There's something happening in Malaysia that'll sound familiar to American ears. It's wealthier than its neighbor. It attracts a lot of illegal workers. The government has periodic crackdowns and often deports undocumented workers. But Miranda Kennedy reports that's causing some big problems for the Malaysian economy.

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MIRANDA KENNEDY: At the Western Digital factory outside Kuala Lumpur, workers in white suits assemble 100,000 disk drives a day for export around the world. Vice President Don Blake says they can't get Malaysians to work assembly jobs like this.

DON BLAKE: If you look at the suits, see, they have their face covered, like their nose is covered, their mouth is covered, all you basically see are the eyes.

So to fill the 4,000 unskilled worker positions, Blake hires foreigners. Most are uneducated Indonesians who come straight from the farms. They're allowed into Malaysia on short-term work visas strictly regulated by the government. The company holds their passports, and puts them up near the factory. Blake likes the arrangement.

BLAKE: Because they want to work. They're here to work and make money and they're well-treated while they're here. If they don't show up for work, then eventually they can be terminated and they have to go back home. It's not like they can go work anywhere else in Malaysia.

And they're here because the government had to find some way to make up for a chronic labor shortage caused by its own crackdowns on illegal immigration. The economy can no longer function without foreign workers. So they had to let in 2 million of them to build the malls and work the plantations. But government minister Mohamed Radzi says they only welcome them temporarily.

MOHAMED RADZI: We need workers, but we need skilled workers. And we need workers who come and do work for five years and then they go back. But unfortunately, not all of them decide to go back.

Radzi worries that as many as a million foreign workers have overstayed their five-year visas and are taxing Malaysia's resources. He launches regular operations to drive them out. But each one leads to a labor shortage, followed by a new wave of illegal immigration to fill the jobs. Employers are hiring illegals even though the punishment is imprisonment and caning. Economist Yeah Kim Ling says that proves Malaysia still needs them.

YEAH KIM: We are still dependent on them to sustain the growth of the economy given that a large portion of the economy is still labor intensive.

It's not only the government that worries about immigrants. Most Malaysians are also concerned it'll undermine the country's recent economic success. In fact, the government is banking on that sentiment. Next year they'll recruit citizens to join their volunteer police force, called Rela, to drive out hundreds of thousands of foreigners by raiding immigrant neighborhoods.

That's bad news for Sukri Rahim, an Indonesian laborer on a construction site in Kuala Lumpur. Rahim snuck into Malaysia illegally five years ago on a boat carrying vegetables. Even though he claims he has a visa now, he's still not comfortable here.

SUKRI RAHIM [TRANSLATOR]: It's easy to find money here, but I'm still afraid of the police when they come during the operations.

KENNEDY: Even though you're legal now, you're still afraid.

RAHIM: Yes, still afraid, because we don't know who we live with, and maybe some of them are illegal.

Sukri lives with hundreds of other workers in a cluster of cheap plywood houses overlooking the construction site.

As the evening fog drifts in, a few guys wander outside their shacks and sit on rickety benches of scrap wood. Many admit they're here illegally after leaving their beautiful Indonesian island where there's not enough jobs. One of them brings out a guitar. It's a song about a man who has to leave the home he loves to find work.

In Kuala Lumpur, I'm Miranda Kennedy for Marketplace.