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Migrants in Developing Countries

January 30, 2018

The OECD collaborated with the ILO to examine the impacts of labor migration in ten developing countries, from Argentina to Thailand. The overall conclusion is that migrant workers have small positive impacts on the labor markets, economic growth prospects, and public finances of their host countries.

These findings justified recommendations to developing country governments to recognize the positive impacts of migrants and to invest in migrants to enhance their positive economic impacts, such as helping migrants to obtain certification of their skills and to open businesses in the countries in which they are working. Governments were urged to improve data on migrant workers, many of whom work in the informal economy without work permits.

Migrant workers in developing countries are more likely to be employed than natives, but a higher share are in low-skill jobs, reflecting the fact that many have little education and are employed in agriculture, construction, and private households rather than in higher wage manufacturing and education or government jobs.

The migrant contribution to economic growth generally reflects their share of employment, so that a country with five percent migrant workers gets five percent of its economic growth from migration. Migrants can have outsized negative effects if migrants displace local workers, or outsize positive effects if migrants start businesses that create jobs.

Immigrants pay taxes and use public services. Determining the balance of their taxes paid and the costs of the public services they consume requires a motion picture analysis over a lifetime, since governments normally re-distribute from the working age population to the old and young. Migrants should be net contributors in the short term, since most are of working age and many are not eligible for social safety net benefits.

The report's recommendations aim to increase migrant contributions to host countries. Better migration policies, such as opening legal channels to reduce illegal migration, echo those made frequently for countries with migrants, viz, make honest assessments of labor needs, negotiate bilateral and regional agreements to facilitate and govern labor migration, and enact policies and programs to prevent discrimination against migrants and to help them to integrate in host countries.

The OECD-ILO report agrees with most economic analyses that migration generates more benefits than costs. However, it does not estimate the cost of its policy recommendations, so there is no sense of how the migrant benefit-cost ratio would changes if host governments made significant investments in migrants. These investments could be symbolic, such as enacting anti-discrimination laws and spending little to enforce them, or significant, as when migrants unify their families in host countries and are granted equal access to education and social benefits.

The implicit assumption is that investing in migrants will protect migrants and increase their benefits to host countries over the long-term. However, if migrants are perceived to be favored over local workers, there may be unrest. Chancellor Helmut Kohl reportedly responded to recommendations for more migrants in Germany in the 1990s by declaring that the social costs of more migrants could exceed their economic benefits.

The difficulty of knowing whether and when there will be a tipping point makes it very hard to determine optimal migration policies and public investments in migrants. UN migration conventions call for equal rights for migrants, and special sensitivity to women and children, but do not tackle the trade offs between competing goods, such as investing more in local versus migrant children. The UN response would be to invest more in both, an answer that provides little guidance when funds are limited.

Middle-income countries are becoming more frequent destinations for migrant workers. What they need is a sense of priorities among long lists of recommendations. If most migrants are workers, should the emphasis be on enforcement to ensure equal treatment in the labor market or on expenditures on programs to recognize migrant skills and help to upgrade them?

Many migrants say that they moved to higher wage countries in search of opportunities for themselves and their children. If parents are sacrificing for children who are with them abroad, should the emphasis of limited government spending be on integrating children into local schools so that they have equal opportunities with natives and tolerating irregular parents employed in the informal economy? Would full rights and protections for Burmese employed in the Thai seafood industry raise costs enough to reduce the number of jobs for Burmese?

When governments are unable or unwilling to do everything for migrants, the issue is how to choose. Most policy reports, including the OECD-ILO report on migration in middle-income countries, lay out a long list of priorities but do not rank or analyze trade offs between them to help governments that must make choices.

OECD. 2018. How Immigrants Contribute to Developing Countries' Economies.