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Is labor export good development policy?

Ernesto M. Pernia
Discuss the pros and cons of PHs labor export policy
No more labor export as policy in Asian neighbors, still a major
development policy in PH
Because of two policy mistakes:
Long-lived import-substitution industrialization policy (replace imports
with domestic production)
Protectionism (exchange and import controls, tax incentives, tarif
structure and selective credit to preferred industries) helped nurture
corruption
Among first in Asia to adopt population policy in 1969 but failed to
sustain
Consequences of policy mistakes: weak long-term economic
performance in the face of strong growth of population and labor force;
too many Filipino workers and too few jobs in domestic economy

PD 442 (Labor Code of 1974) President Marcos ensure careful


selection of Filipino workers for the overseas labor market to protect
the good name of the Philippines abroad
PD 1412 Article 12 it is state policy to strengthen network of public
employment offices and rationalize participation of private sector in
recruitment and placement of workers, locally and overseas, to serve
national development objectives
Creation of OEDB (Overseas Employment Development Board) and
Office of Emigrant Affairs to promote, develop, regulate Filipino
overseas employment
1982 creation of POEA assumes functions of OEDB
1991, Pres. Cory Aquino lifted ban on new applications for recruitment
agencies to take advantage of new markets for Filipino labor, opening
recruitment to new players and competition
Hype about surges in remittances boosted peso, eased debt burden,
tamed inflation, better picture of economy encouraged government
to further policy
Pres. Arroyos idea to develop super-maids for employment in
advanced countries, promoted OFWs to Filipino expats

Migrants typically among better educated and experienced workers;


departure often results in disruption of economic activity
Despite replacement, situation not the same as before shown by
deterioration in quality (ex. education and health services)
Brain drain migration takes only less than 10% of college-educated or
higher, but still results in brain drain in few labor-sending countries
In PH highly-skilled nurses and blue-collar workers; education-training
system unable to produce comparable replacements; brain drain in
short-term at least
However, losses to labor-exporting developing countries hard to
quantify
One aspect: loss of public funds invested in education and training of
those who migrate
Compensating benefits: remittances, return migration
World Bank study: international migration exerts strong negative efect
on poverty (ex. 10% rise in share of international migrants 1.9%
decline in population below poverty line)
Psychosocial costs of migration children have to substitute for work of
absent parents leading to educational retardation
Children of migrants more susceptible to drug abuse, absenteeism or
dropping out of school; more prone to depression, withdrawal and
running away due to lack of parental contact and supervision; family
breakdown
OFWs bear psychosocial costs in work places: violence and abuses
(females), exposed to sexual harassment and exploitation, rape, STDs
Remittances to developing countries reportedly risen more than
fivefold from 30B USD in 1990 to 170B in 2005
PH worlds fourth highest remittance recipient (after India, China and
Mexico)
Lower-middle to middle-income families directly gain from remittances
(migrants come from not-so-poor families)
Internal or domestic remittances tend to reduce poverty somewhat
more than international remittances; later in paper more welfareenhancing for lower quintiles and inequality-improving than
international remittances
PH study remittances represent income transfer to poor households
and increase in gifts to other households; but result in higher income
inequality, tends to benefit higher income deciles

Some argue that inequality efect is not straightforward


Remittances increase inequality and social diferentiation between
recipient and non-recipient households
Efect on inequality depends on opportunities for migration
Initially, migration would worsen inequality when migration costs are
high but would eventually improve as lower-income households are
able to aford the lower costs
Evidence of decline in labor force participation among remittance
recipients; reduction in work efort (more among females than males)
Matched by increase in entrepreneurial activities (ex. microenterprises
for women, self-employment for men)
Remittances on investment vs consumption still a debated issue
Issue: whether households save more and such savings become
available for investment in local/macro economy
Expenditures on education, housing and land also important forms of
investment
PH study: households whose overseas workers experienced favorable
exchange-rate shocks (Asian financial crisis) able to reduce child labor,
increase educational spending, improve child schooling and aford
higher ownership of durable goods; higher human capital investment
education and health
Macroeconomic level: alleviate fiscal deficits, external debts, trade
imbalances, scant FDIs in developing countries; however it exerts
upward pressure of prices PH dependent on imports hence efects
appears to be the opposite
Moral hazard efect government softens in pursuing policy reform or
improving governments while people reassured into complacency (ex.
Philippines)
Econometric analysis what extent can remittances raise household
incomes and alleviate poverty, and influence investment in human
capital, labor force participation and household saving, controlling for
influence of other variables
Main results efect of remittance on household incomes is positive
and highly significant, controlling for education of household head,
dependency ratio and income class of province of residence
Raises likelihood of a household getting out of poverty
Strongly influence education spending per school-age child (P1,788
more for education per child, P688 on healthcare per household
member)

Exert negative efect on share of employed persons in the household


may be interpreted as complacency efect; also possible reduction in
children working
Positive and significant efect on household saving behavior
Remittances have positive and significant efect on well-being of poor
households; roads, education and health also appear to be particularly
important factors that improve poors welfare
Remittances contribute to regional development through increased
spending for consumption, human capital and housing investments,
and consequent multiplier efects
Advanced regions tend to get bigger shares of total; regional
divergence rather than convergence
Positive impact on poor in regions mean poor people getting out of
poverty (10% increase in household income 2.6% rise in proportion
lifted out of poverty)
Labor export cannot be relied upon as policy for reducing poverty
despite appearing to have greatly helped Philippine household
If it is, country wouldnt be muddling through for past three decades or
more
Global labor market will demand higher-level professional and technical
workers, if labor supply can respond, it will result in persisting social
inequality; human capital also has its limits
Made it convenient for government to shirk difficult policy reforms;
other countries (ex. South Korea, Taiwan, Thailand) used labor export
as temporary measure pursued policy moved up to rapid and
sustained growth paths
As it causes brain drain and psychosocial costs, it is bound to further
compromise countrys human capital requirements for long-term
development
Questions: Is the export of labor sustainable? Are we content with the
blue-collar business of exporting labor? If we are, what needs to be
done to stretch the limits of our human capital industry? If we are not
content, whats the alternative? In general, is there a need to rethink
our countrys labor export policy?