What do workers pay for foreign jobs?

Philip Martin

Highlights

• International labor migration = big business

– 10 million workers/year @$1,000 = $10 billion/year

– Who receives this revenue? How can worker-paid costs be reduced?

– Worker-paid costs up as worker skill down? High fees are regressive & non-transparent

• Major determinant of worker-paid costs = corridor. Cost differences to GCC = 10-1 ($400-$4,000), earnings differences = 2-1 ($250-$500)

• Reducing worker-paid costs likely to be corridor-specific, not one-size-fits all: Worker education vs allowing direct foreign employer recruitment

4 costs: training, financial, opportunity, social

• Training costs: general K-12 or only specific training for foreign jobs? Doctors & nurses?

• Financial costs: what do workers pay

– To learn about foreign jobs

– To obtain contracts, complete exit formalities, & travel to foreign jobs

– Net earnings abroad, after deductions & taxes

• Opportunity costs: wages not earned while training, formalities, & waiting to go abroad

• Social costs: separation from family, not using skills to perform foreign job (brain & skill waste); effects of brain drain on COO

Migration: financial costs

• ILO conventions: employers should pay ALL financial costs for workers. But S & D mean:

– Employers pay recruitment costs for high-skilled

– Low-skilled workers pay because S > D

– Inverse relationship: as worker skill goes down, the worker-paid share of migration costs goes up

• Wage wedge between COO & COD influences how much workers will pay

– Govt-set maximum: 1 month’s foreign earnings, 4.2% of earnings on 2-year contract, 2.8% on 3-year

– But: low-skilled migrants can pay 30-35% of foreign earnings, = 1 year of 3 years foreign earnings

Benefits of Reducing Migration Costs

• Individual & household:

– Increase savings and remittances, which reduces poverty & speeds development

– Reduce worker vulnerability abroad

• Employers and govts:

– Employers: more satisfied = more productive workers, less likely to take 2nd jobs, abscond etc

– Governments: fewer “problem migrants”

• Losers: recruiters & others in migration infrastructure. Many recruiters closely linked to govt officials (corruption)

Worker-paid costs • Employers normally pay labor market testing

costs. Do employers sell visas to recruiters/migrants or deduct levy costs from wages?

• Getting contract for foreign job: what payments to subagents? What charges for documents & checks, travel & pre-departure training?

• Do workers get promised wage abroad? All benefits? What deductions?

• What cost to remit savings? Are savings invested? Are skills recognized at home?

• Do migrants borrow to cover costs? From whom?

What do low-skill workers pay for foreign jobs?

• Korea: 1 to 1.5 month’s earnings. Kuwait, 4 months’earnings; Spain: 0.5 month’s earnings

• Variation by corridor:

• Many workers pay lump sum—do not know cost of items

• Variance in cost of standard items: passports, med checks

• Bangladeshis & Egyptians paid more than Indians & Sri Lankans for jobs in Kuwait (Sri Lankans = domestic workers)

• Workers benefit: earn 4-6 times more abroad

• Many workers did not have a wage job at home, from unemployed or farmer to wage worker abroad

• Higher wages attract better educated workers: Korea vs Kuwait (Egypt exception) & Spain

• All migrants pay something for foreign jobs

GCC: 20 million migrant workers, 90% of private-sector workers are migrants. Workers interviewed as they returned

Indians: 1/3 of foreigners in GCC. 7 mil + = Bangla & Paki combined

Corridor matters: structural factors & policies determine costsSimilar earnings in GCC, different migration costs, blue >red except PH

Improving recruiter compliance: carrots versus sticks

Merchants of Labor:Recruiters and International Labor Migration

Philip MartinOxford University Press (2017)

• Regulation and enforcement: IF worker-paid cost ceiling is too low, will there be enough enforcement to induce compliance? Overpaying can be “victimless crime”—worker gets job (like ticket scalping)

• Can incentives replace overcharges?

• Micro: costs (lower fees) for A-rated, tax exemptions and subsidies, and publicity via awards etc

• Macro: consolidation (fewer & larger & standardization & econ of scale); allow direct foreign employer recruitment; favor partners over agents

Other options: certify good employers and recruiters

Bilateral agreements: EPS, RSE, SAWP, Bangladesh-Malaysia

SDG 10.7.1 Recruitment cost indicator• Measure what workers pay as share of their annual

foreign earnings

• 4 issues: define worker-paid costs, collect data on costs, loans & earnings

• 4 types of worker-paid costs:

• Training: general K-12 versus specific for foreign jobs (language, seafarer, job that exists only abroad)

• Financial costs of obtaining contracts, passports & visas, health & other checks, internal and international travel

• Opportunity costs of preparing to go abroad: wages not earned at home

• Social costs of separation from family & friends; restricted rights abroad

Training and past failed efforts to get jobs• Employers normally pay all or most migration costs for

highly skilled workers. Why? D>S

• Training to acquire skills at home that encourage foreign employers to pay all worker costs can be expensive (doctor, nurse, accountant)

• Some training is useful only or mostly abroad (seafarer)

• Should training cost data be collected?

• Past failed attempts to get foreign jobs

• Only workers with foreign jobs are interviewed. Should they report the costs of past failed efforts?

• Yes: from worker point of view, past failures are part of the investment to get foreign job

• No: bias average cost data by corridor

Interviewing workers• Remittance cost data: call money transfer companies

• Recruitment cost data: assume recruiters lie & interview workers: departure, while abroad, on return

• Departure: use final contract check to obtain migration cost data. Issue: would workers tell truth if they feared that overpaying could prevent them from leaving?

• Abroad: at orientation for new arrivals (Korea, Singapore) or after going to work. Issues: do workers know earnings? Can household or labor force surveys screen foreign-born workers? Who interviews--labor attaches? How to get reliable sampling frame?

• Return: how to obtain reliable sample: would welcome-home desk & exemption from airport tax get cooperation? Any recall bias on costs 2-3 years earlier?

What about recruiters?

• Assumption: recruiters not truthful

• But, in corridors with worker-reported cost data, interview recruiters & hold focus groups with recruiters, workers, NGOs etc to explore differences between worker-and recruiter-reported costs

• IF recruiter-reported cost data are reliable, interview recruiters—much cheaper & easier way to create migration cost matrix

Data: migration costs, loans, earnings• 3 major costs to get job:

• Agent/recruiter & contract cost

• Cost of exit procedures, visa, health & police checks, welfare fund, pre-departure training

• Internal and international travel & other costs

• Did employers reimburse any of these costs?

• Loans: did workers borrow money for pre-departure costs, how much, from whom, what interest, what is current status of loan?

• Earnings: Earnings at home & abroad, usual hours of work, what benefits and rights

• N.B. some cost, loan, and job-related questions can be answered only by workers.

Moving forward on migration costs• Collect data from migrant workers: test 3 methods

• Pre-departure

• While abroad, using (1) labor force & household surveys, (2) labor attaches, (3) researchers

• Upon return

• Focus groups: since major variable is corridor, use focus groups to understand why costs vary and what can be done to reduce them

• Taking stock: KNOMAD cost data on 3,000 workers collected 2014-16: corridor is the major variable

• Understand these data via focus groups; meta-analysis of KNOMAD and other migration cost data

• Collect more data, using all 3 methods