Workers without borders

The subject warrants more examination, particularly in light of current demographic trends that are affecting developing and developed countries. Recent work with Sanjay Jain and Sumon Majumdar explores the immigration controversy in detail and examines the cultural and political underpinnings of the debate.

The potential gains from the globalisation of labour have the potential to dwarf those from foreign aid or even the liberalisation of trade and capital flows across borders. For example, a decision by developed countries to liberalise immigration restrictions by a mere 3 per cent could result in an estimated output gain of more than $150 billion. Yet, while many policymakers encourage greater mobility of goods, services and capital, the use of immigration as a development tool is rarely considered a palatable policy option.

It is worth thinking about the issue in a historical light. More than three decades ago, economist John Kenneth Galbraith observed that migration has been the “oldest action against poverty” for most of human history. To put the immigration issue in its historical perspective, consider the rich-poor wage gaps for unskilled workers that drove the great 19th century migrations. During this period, wages in the United States were between two and four times higher than in European countries such as Ireland, Norway and Sweden. By contrast, by the start of the 21st century, wages in the developed world were six to nine times higher than in the developing world. From the perspective of developing countries, such wage gaps are likely to be the key drivers of future global migration patterns.

At the same time, developed countries are facing a historically unprecedented demographic challenge. The increase in people’s life expectancy has been coupled with a decline in fertility, making sustaining pension and social security systems even more difficult. Consider the United States as an example. It enjoys a relatively high fertility rate among developed countries, and it has roughly five working-age individuals to support each senior citisen today. But this number is expected to drop by half by 2030. The situation is even more worrying in much of Europe, where the available working population to support every person of retirement age is already much smaller. All signs point to a looming demographic crisis that will only increase the strain on fiscal resources still further.

In these circumstances, it is difficult to see how the developed world’s social security systems can remain solvent in the longer term. Something will have to give, leading to either a drastic curtailment of benefits or a far-reaching, gamechanging solution. One such solution could be to increase the influx of working-age migrants from developing to developed countries. Our world is increasingly integrated at numerous informational, technological and cultural levels. Globalisation of trade in goods and capital will eventually reach its limits. As a result, we believe that the issues raised by international labour mobility deserve exploration.

The potentially huge economic gains from greater international labour mobility generally are ignored or little discussed. The reason is politics. Lowering the barriers to international migration inevitably results in ‘winners and losers,’ and these distributional effects feed into the political arena and often spark a political and social backlash.

The biggest winner from expanded migration is usually the migrant worker, who pockets a large proportion of the resulting economic gains. However, the reason this becomes politically toxic is that the gains usually come at the expense of an existing worker in the destination country. The distributional effects of migration often depend on whether the worker is skilled or unskilled. For instance, a greater number of young, low-skilled migrants from Eastern Europe is likely to reduce the wages that native UK workers would be able to earn working in coffee shops. Low-skilled worker migration is likely to hurt those at the lower end of the economic spectrum. But at the same time, such migration usually benefits owners of capital and increases the benefits to consumers of goods that rely on less-skilled labour. As a result, policies that encourage the migration of low-skilled workers are likely to meet with political resistance, if not outright hostility, from many workers in the destination country.

Compounding these effects is the perception that migrants typically are a drain on public finances by taking out more from the welfare system than they contribute through taxation. These fears have been exacerbated since the onset of the economic crisis in Europe and the United States, and such fears have helped to harden antiimmigration attitudes. However, the distributional impact should not be exaggerated. And such an impact is not unique to international labour mobility; the globalisation of trade in goods and in capital flows also gives rise to distributional effects. If attitudes in developed countries are far more hostile to the globalisation of worker mobility than they are to that of capital or trade in goods, then other factors must be at work.

One of these forces is national culture. Increased labour mobility affects a country’s culture and its sense of national identity. It should come as no surprise that hostility towards labour migration is much greater in relatively homogeneous Japan than in an ethnically diverse immigrant country such as the United States.

Although permanent migration would no doubt yield larger economic gains, a programme of temporary migration might be politically more acceptable in host countries where citisens perceive an inflow of migrants as a threat to national culture and identity. Examples abound: Filipino maids in Singapore, South Asian migrants in the Middle East, seasonal guest workers fruit-picking in the United Kingdom – all offer illustrations of temporary migration at work. Foreign domestic workers constitute close to 20 per cent of the Kuwaiti labour force and more than 7 per cent of the workforce in Hong Kong, Singapore, Bahrain and Saudi Arabia. These examples offer some policy lessons. The most successful examples suggest that it should be possible to promote a policy of greater international worker mobility and to protect migrants’ basic rights.

Designing a modest programme would probably have the greatest chance of succeeding. A small move towards greater liberalisation of global labour markets through more temporary labour migration schemes would achieve two goals at once. First, this could boost overall world output. Workers from developing countries become much more productive when they migrate to the higherproductivity host countries. Second, this migration would boost the income of migrants and the owners of capital in the developed world.

Modest programmes would allow for experimentation and flexibility. If the promised benefits from migration do not materialise or if there is a recession or a bout of high unemployment, then host countries can always choose not to renew the visas of temporary migrants or to scale down their programmes. Temporary migration is less likely to be seen as a threat to national culture and identity in part because it does not require the giving of voting or other political rights to immigrants. As a result, political opposition to modest programmes would probably be relatively subdued.

A temporary migration programme could target different sectors, be restricted to certain source countries, scaled up or down, or even eliminated. Our work suggests that some host countries may be better candidates for this kind of programme than others – and for surprising reasons. Countries that are particularly averse to migrants, or where socio-cultural assimilation of foreign workers is difficult, may find it easier to sustain high levels of temporary migration, we find. From a policy perspective, this suggests that it may be easier to sustain a temporary migration programme involving foreign workers who find it harder to assimilate. Indeed, this finding resonates with the experience of some of the largest guest-worker programmes in the world, those in the Arabian Gulf states.

To introduce such a programme, overall policy ‘packages’ ought to be considered to address the potential negative effects on some workers in the host country. One way of addressing this issue is to establish a tax on the gains generated by the temporary migrant worker and to put the proceeds into a compensation fund to support skills upgrading, temporary unemployment insurance or even a strengthening of the overall safety net for host-country workers.

One of the biggest practical drawbacks of temporary migration programmes involves their enforceability. It is often argued, notably in the case of Turkish migrants settling in Germany in the 1960s, that ‘temporary migration is permanent.’ The concern of many is that temporary migrant workers are hard to repatriate. Temporary migration programmes have not been effective in many Western countries in part because few incentives have been put in place to ensure that workers return to their home country. To ensure enforceability, therefore, any programme of temporary migration should offer clear incentives and penalties for all parties concerned – not just for workers and employers but importantly also for both sender and host country governments. For example, if Mexico is unable to ensure that temporary migrant workers in the US fruit-picking sector do not return home, then future quotas from Mexico could be reduced proportionally, and other countries’ quotas could be increased.

The absence of serious debate about greater international labour mobility appears to stem from these perceived threats to national identity and national culture in destination countries. In destination countries, many people fear a permanent and fundamental dilution of national identity that could stem from immigration. In many places at present, these concerns trump the desire for greater economic gain.