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October 2016, Volume 22, Number 4

Safety Valves and Nets

Sending workers abroad is often seen as a safety valve for countries with more workers than jobs. A safety valve allows steam to escape and protect the engine, but the safety valve of migration depends on other countries accepting workers who cannot find decent jobs at home.

Many governments have social safety nets, programs that provide payments or benefits to residents unable to work and earn; private firms also offer insurance against loss of income or unexpected health expenses. Remittances are a private safety net, generating money for the families of migrants with multiplier effects when the money is spent.

South Asian countries such as India and Nepal are very dependent on safety valves and nets. Labor force growth is faster than job growth, and remittances are a private safety net for families in origin countries.

How much longer can South Asian countries rely on GCC countries to provide safety valves and nets? There is little prospect of job growth catching up with labor force growth in origin countries, but many GCC countries have policies that aim to move citizens into private sector jobs, which could reduce the employment of migrant workers.

Gulf nativization policies have not been successful so far for predictable reasons. Public sector jobs pay high wages for little work, while private sector wages in GCC countries have been held down by employer expectations that migrants must work hard or be sent home. As long as GCC governments allow private employers to recruit as many migrants as they want and offer public sector jobs to natives, there is little incentive for natives to seek private sector jobs.

The GCC countries, mindful of the Arab Spring uprisings of jobless youth, are developing policies to substitute native for foreign workers in private-sector jobs. First-wave policies often used quotas, requiring employers to employ one native for each five foreign workers, or made some sectors off-limits to foreign workers. These policies failed, creating make-work jobs for natives or leading private businesses to close rather than rely only on natives.

Second-wave policies are using incentives, such as wage subsidies to encourage employers to hire natives, levies on employers for each foreign worker, and taxes on migrant worker earnings to make employment in the GCC less attractive.

How will developments in South Asia and GCC countries affect safety valves and nets? Despite rapid growth in India, there is little prospect that formal sector job growth will catch up to labor force growth, and the gap between workers and jobs will widen even faster in Bangladesh, Nepal and Pakistan.

The increased supply of South Asian workers is likely to confront a declining demand in GCC countries due to lower oil prices that reduce government revenues and result in fewer construction and other contracts that create a demand for migrant workers. Even if second-wave nativization programs fail, fewer government projects mean there will be less demand for migrants.

More South Asian workers and fewer GCC jobs could lead to lower wages and worst conditions for migrants. Wages in GCC countries are already low, often $250 to $300 a month for construction workers, and many workers complain of wages not being paid on time. Since GCC countries do not have minimum wages, some South Asian countries try to set minimum wages for their citizens abroad, but with more workers than jobs, these are hard to enforce.

For example, governments can check that departing workers have contracts promising them at least the minimum wage, but employers, recruiters and workers may know that this is not the wage that will be paid. India requires its consulates abroad to report a reference wage for each occupation that becomes the minimum wage in departing worker contracts, but these contractual wages are often not paid abroad.

If the safety valve for excess workers narrows or closes, the safety net of remittances may also shrink. In an ideal world, remittances and the return of workers with new skills would spur development and job growth, making it unnecessary for the children of migrants to follow their parents abroad.

Many migrants are from rural areas of South Asian countries, and their children would have to gain enough education to move to cities to be successful at home. Rural schools are often poor, and competition for good jobs in cities is often stiff, so that the children of migrants are as likely to follow their parents abroad as to remain at home to get formal-sector jobs.

Migration can provide short-term safety valves and nets, but may not spur stay-at-home development. Instead, emigration may provide enough of a safety valve and net to allow governing elites to postpone difficult economic choices that could put countries on a faster road to job growth, from land and tax reform to changing government spending priorities.

The pessimistic conclusion in the South Asian-GCC corridor is that India and other origin countries have sent prime-aged workers to fill 3-D jobs, dirty, dangerous, and difficult, in GCC countries in exchange for more money for poor families but few longer-term benefits. While abroad, migrants live in dorm-style housing, while their families at home spend remittances on current consumption.

Migration can be a short-cut to development in origin countries, but there is no automatic link to guarantee that sending workers abroad and receiving remittances in return will speed development. Safety valves and nets can reduce poverty for individuals at the cost of separation from family and restricted rights abroad, but migration alone rarely has transformative effects to make it self-stopping.

Wickramasekara, Piyasiri. 2015. South Asian Gulf migration to the Gulf: a safety valve or a development strategy? Migration and Development. Vol 5. No 1. pp 99-129.

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