1 THE POSITIVE IMPACT OF LABOR MOBILITY ON HOME COUNTRY

Table of Contents

PREFACE 2

I. DEFINITION AND HISTORY OF LABOR MOBILITY 3

1. Definition 3

2. History 4

II. THE POSITIVE IMPACTS OF LABOR MOBILITY ON HOME COUNTRY 7

1. The bigger the population is, the smaller the land is: Why not labor mobility? 7

2. Surplus labor 9

3. Remittance: a large national income 10

4. Brain drain or get more drain? 10

5. Filling vacancies: Win-Win situation 11

III. TRENDS IN ASIAN LABOR MIGRATION 12

IV. CONCLUSION 15

REFERENCES 16

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PREFACE

In the two decades following the end of the Second World War, steadily rising
real wages and the strengthening of the welfare State were the common
features of labor markets in all the leading industrial economies. The
coincidence of high unemployment levels and growing wage inequality in the
North with sharp increases in manufacturing imports from the South has led to
concerns over a destructive link running from more open trade relations to the
labor market.

In a flexible and complicated labor market, it is desirable to help employment

adjust consistently to changing the demand conditions by a high degree of
movement of labor. However, an inefficient allocation of labor resources may
lead to a negative effect on long-term level and the growth rate of potential
output, and limit the pace at which an economy can grow in the short run.
Hence, learning and understanding how labor mobility works and its impacts
are very important.

As labor mobility is a part of international factor movements which strongly

affect on the world‟s economy, this report considers the benefits of any
increase in labor mobility to home countries (sending countries) and also
examines the potential for increased cross-border labor mobility in Asia.

The first part of this report states the definition and history of labor movement
(labor mobility) to give a general view to make it easier to go through other
parts. Then, the report moves on to examine the positive impacts of labor
mobility on home country: how labor mobility can affect home country and
examples for each section. The trend in labor migration, especially in Asia will
be mentioned in the final part which the migration status of Asian countries and
the properties of labor migration in Asia will be considered carefully.

In this report, the negative impacts to home countries and the effects of labor
mobility on host countries are omitted.

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3 THE POSITIVE IMPACT OF LABOR MOBILITY ON HOME COUNTRY

I. DEFINITION AND HISTORY OF LABOR MOBILITY

1. Definition

- Emigrate: to leave a country permanently and go to live in another one.

- Immigrate: to come to live in a different country
(Cambridge’s Advanced Learner’s Dictionary)

Labor Migration + Labor Emigration = Labor Mobility (or Movement of

Labor) = Geographical Mobility + Occupational Mobility.

Labor Migration and Labor Emigration is a phenomenon. People have

moved from one world region to another, and from one country to another,
since the beginnings of recorded history. The reason for this phenomenon can
be climatic changes and natural disasters. This has been the case particularly
where large-scale population movements have been observed. Wars have also
brought major population disturbances. For example, in 1971, a massive
migration occurred with 10 million refugees left Bangladesh for safety in India.
A desire for political and religious freedom has always been an important
reason for labor flows. However, it is widely recognized that economic
motivations play a key role in the movement of labor across the national
boundaries. A desire for higher wages, secure employment, better occupation
and opportunities in terms of training and education all serve to attract
individuals and families, encouraging them to move from one country to
another.

Geographical Occupational Labor

Mobility Mobility Mobility

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4 THE POSITIVE IMPACT OF LABOR MOBILITY ON HOME COUNTRY

Climate
and
weather The most important
factor

Wars
Labor Economic
Motivations
Mobility

Politics
and
Religions

2. History

The peak years for capital and labor flows were between 1907 and
1913.Britain, as a major source of capital, invested £1070m abroad during this
period. Sixty percent of the investment went to Canada, Australasia, Argentina
and the United States.

Why did international capital and labor flows increase so rapidly towards the
end of the nineteenth century? Taylor and Williamson (1994) argue that high
transport costs in the previous centuries had ruled out trade in natural resources
and resource-intensive commodities. The economies had cheap resources, but
lacked labor and capital to exploit them. As transport costs fell in the 19th
century, labor flowed in to exploit natural resources.

The Figure I.2 below shows a strong positive relationship between real wages
and the growth of labor supplies between 1870 and 1913 in a cross-section of
countries. Countries with low real wages such as Italy, Sweden and Spain
showed low growth in labor supplies. These countries provided migrants to
other developed countries. Countries like the US, Australia, Canada and
Argentina had significantly higher growth in labor supplies, principally migrant
labor attracted by high real wages. Other countries – UK, France, and Germany
– were clustered around the middle. Ireland showed a negative growth of labor
supply, indicating rates of emigration higher than the rate of growth of
population.

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Figure I.2: Real wages and growth of labor supplies in 1870 – 1913

Migrant labor increased labor supplies in the developed countries and enabled
the exploitation of natural resources. In the US, immigrants took about 40
percent of the population increase between 1870 and 1913.
Table I.2.1 below indicates the volume of immigration to the United States
from the 1820s to 2001. Western Europe was a major source of immigrants
during this period, with Germany, Italy, and UK among the largest
contributors. In recent years, large numbers of Mexicans, as well as people
from Asia, have migrated to the United States. Migrants have been motivated
by better economic opportunities and by noneconomic factors such as politics,
war, and religion.

Table I.2.1. Source: Data taken from U.S Immigration and Naturalization Service.

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Although international labor movements can enhance the world economy‟s

effiency, they are often restricted by government controls. The US, like most
countries, limits immigration. Following waves of immigration at the turn of
the century, the Immigration Act of 1924 was implemented. Besides restricting
the overall flow of immigrants to the US, the act implemented a quote that
limited the number of immigrants from each foreign country. Therefore, that‟s
why from 1921-2001 period, the number of immigrants to the US decreased
compared with 1901-1920 period. Because the quotes were based on the
number of US citizens who had previously emigrated from those countries, the
allocation system favored emigrants from northern Europe relative to southern
Europe. In the late 1960s, the quota formula was modified, which led to
increasing numbers of Asian immigrants to the US.

Despite the quote of immigrants, there are more and more people who want to
emigrate their country and immigrate such countries as the US or Australia.
Does this trend give their home country any benefit?

Table I.2.2: The role of immigrants as a share of the population and work force.

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II. THE POSITIVE IMPACTS OF LABOR MOBILITY ON HOME

COUNTRY
International Labor Mobility has never stopped being a hot and contentious
topic of billions of people in the world since this concept was formed. The
simple is that it is a very important matter, which can have effects on decisions
of leaders of countries, International Companies and many other business and
political practitioners. In other words, international mobility is a significant
factor in the economy, politics and society of every nation and territory. But to
which extent and in which aspects does this factor affect on. In this essay, we
will discuss about the positive impact of International labor mobility on home
countries‟ economy.

1. The bigger the population is, the smaller the land is: Why not labor
mobility?

As a matter of fact, the land does not shrink or become smaller as long as the
growth of the population. It is just a way of speaking people use to simulate the
situation of unemployment.

Many countries have young population and when those young generations
grow, they need jobs to earn their lives. However, the economy in these
countries cannot supply enough work for everyone. As a result, the
unemployment rate increases higher and higher and cause recessions within the
country.

To reduce the very high unemployment rate in labor-intensive countries,

employees are sent to work abroad when they fulfill requirements from foreign
employers. This labor distribution really lightens the burden of the government
in unemployment and providing welfare.

And Indonesia and India are typical example. In 2009, the unemployment rate
stood at 6.8 % in India and 8.4% in Indonesia. Emigration has helped to reduce
unemployment rate in these two countries. Below is the detailed data:

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 India

Year Unemployment rate (%)

2002 8.8
2003 8.8
2004 9.5
2005 9.2
2006 8.9
2007 7.8
2008 7.2
2009 6.8

Definition of Unemployment rate: This entry contains the percent of the labor force
that is without jobs. Substantial underemployment might be noted.

 Indonesia

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Year Unemployment rate (%)

2000 15
2001 15
2002 8
2003 10.6
2004 8.7
2005 9.2
2006 11.8
2007 12.5
2008 9.1
2009 8.4

Definition of Unemployment rate: This entry contains the percent of the labor force
that is without jobs. Substantial underemployment might be noted.

2. Surplus labor

Many countries of emigration have surplus labor in the agricultural sector.

High rates of population growth bring overcrowding on the land. In these
circumstances emigration has often been a safety valve. As labor leaves the
economy, the marginal product of those remaining on the land rises.

Emigration of surplus labor should have raised the productivity and real
income of those left behind, as well as raising the incomes of the migrants.

For example, in the 1950s, 1960s and 1970s there was a large exodus of surplus
labor from the Indian subcontinent, from the Caribbean and from Sub-Saharan
and North Africa, destined for Europe‟s towns and cities.

Table II.2: Marginal Product of Labor when there is surplus labor. The more labor,
the less marginal product of labor since there are too many people working on the
same process and it can lower the productivity.

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3. Remittance: a large national income

Most of employees who work abroad try to save money to send back to
their families in home countries. This amount of money contributes not
small parts in income of many countries. For example, in the Philippines,
the region's largest labor exporter, remittances inflows accounted for 12.2%
of GDP in 2009. The graph “Top remittances receiving countries in Asia
Pacific: 2004-2009” will show the information in other countries.

The employees can save money for their home countries because their
wages in foreign countries are higher than in their home countries while
they do not spend as much as the residents. Migrants often adopt new
consumption habits and bring these habit backs to their origin countries.

Below is information about

Top remittances receiving countries in Asia Pacific: 2004-2009

(US$ billions)

Source: Euro monitor International from trade sources/national statistics

4. Brain drain or get more drain?

Most of countries try to prevent the labor flow pouring out of their border.
They have to face brain drain problem and have the foundation to worry about
that.

However, the coin has two sides. Exported labor can bring a great benefit to the
home country once the employees come back. This is not an over-optimistic

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view of point as several reasons. Before going to work abroad, the employees
are often trained by the company who hires them. So from unskilled or low-
skilled labor, they have employability skills and experience a multinational
working environment. After coming back home, their knowledge would be
very useful to improve the production in their home countries as well as blow
an innovative wind to the mind of other people.

Nevertheless, to attract these employees to go back the wages in home

countries must be equivalent or at least not behind so far from wages in foreign
ones. It is a part of a natural trend when wages increase in home countries and
decrease in destination countries. It also depends on the agreement between the
government and employees or the home countries‟ government and foreign
countries‟ government...to turn the labor current to opposite direction.

5. Filling vacancies: Win-Win situation

International Labor mobility can be said to be a resource exchange between the

countries surplus in labor and the one surplus in land. If people were not able to
export land, they could easily export labor to work on the value of that surplus
land. This brings satisfaction to everyone as vacancies in many jobs are filled
by who really need those positions. The productivity in foreign countries
increases and home countries do not waste their labor.

So in this win-win situation, the partner relationship between both sides of

countries can be built easily and the home countries can get more than they
think with new techniques, contracts of other products and support from
foreign countries as a term of exchange.

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III. TRENDS IN ASIAN LABOR MIGRATION

 Migration Status of Asian Countries

- Labor sending

o Bangladesh, China, Indonesia, Nepal, Philippines, Sri Lanka,

Vietnam

- Labor sending and receiving

o India, Malaysia, Pakistan, Thailand

- Labor receiving

o Middle East, Brunei Darussalam, Taiwan (China), Japan, Republic

of Korea, Hong Kong SAR, Singapore.

 Changing destinations

Migration of workers from Asian countries has shifted from a predominantly

Middle East - bound flow to an intra- Asian flow within the past decade of so

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This is especially true of Southeast Asian countries while South Asia has
continued to rely on the Middle East labor market. At the same time, the
volume of labor migration within the Asian region was growing with rapid
economic growth in East Asia and the emergence of newly industrializing
economies such as Malaysia and Thailand. Yet South Asia was still heavily
dependent on the Middle Eastern countries. According to ILO estimates, there
were about 6.5 million foreign workers in 1997 in seven Asian countries or
areas: Japan, the Republic of Korea, Malaysia, Singapore, Thailand, Hong
Kong (China) and Taiwan (China).

 Temporary migration of labor

Labor migration in Asia is mostly on fixed term contracts representing

temporary migration. Permanent or settler migration still takes place on a
limited scale to Australia and New Zealand. The short duration has obvious
implications for recognition of migrant rights and their economic and social
integration in receiving countries.

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 A migration flow dominated by semi-skilled and unskilled workers

Most migrant workers are unskilled or semi-skilled such as construction

workers and female domestic workers. These workers face numerous problems
in protection in both sending and receiving countries

 Explosive growth in irregular migration

The most important trend in total migration from the viewpoint of protection of
migrant rights in Asia is the rising share of „irregular migration‟. Since these
workers have no legal status in the host countries, their rights are subject to
frequent abuse as discussed later.

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 Commercialization of the recruitment industry

The share of public employment services in sending workers overseas has

fallen drastically giving way to a thriving industry of intermediaries in both
sending and receiving countries. Some are large firms while many are
unregistered small enterprises. It is well documented that the recruitment
industry has been responsible for various malpractices and growth of irregular
migration in the region.

IV. CONCLUSION

The labor mobility (comprises geographic mobility and occupational mobility)

has become a phenomenon all over the world. This international factor affects
not only the world as a whole but also the home countries (the sending
countries) and workers in these countries.

At the aggregate level, labor mobility conveys important economic benefits.

The relocation of workers across regions permits the exploitation of
complementary resources as they are discovered in new places while relocation
sectors make possible the use of new technologies and the growth of new
industries. If migrants return to their home countries with upgraded skills, this
may offset the initial losses caused by the brain drain. Moreover, workers‟
remittances are also among the potential benefits of emigration as in some
countries, workers‟ remittances count as a relevant financing item for the
current account deficit and contribute to the foreign exchange reserves of
receiving country. However, restrictions placed on how workers move around,
either geographically or occupationally, can slow growth by making it more
difficult for businesses to hire productive workers. At the same time,
unrestricted labor can depress wages in certain industries and create
unemployment.

At the individual level, mobility allows for the improvements in the economic
circumstances of those whose skills or aspirations are poor match for the job or
location in which they find themselves. If workers are permitted to train for
new jobs, move locations or seek higher wages, then they are more likely to be
happy working, which can have a positive impact on productivity. Workers
who do not feel indefinitely relegated to low wages or jobs with few benefits
will consistently seek better positions, which also make it easier for new
industries to attract the most qualified applicants by offering better perks.

As labor mobility improves, the life of workers over the world would also be
better. As a general rule, workers are able to find better paying jobs and
improve their living situations when less control is placed on where they can

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move and what occupations they can apply for. At the same time, businesses
improve because workers receive better training and the right employee can be
hired. Economies improve as productivity improves. Although most people
find labor mobility is a good thing, governments and other companies in home
countries should consider carefully when sending their people to another
countries to protect their rights and prevent them from risks.

REFERENCES

Barbara Ingham, International Economics: A European Focus (Prentice Hall

Publishing).

Frigyes Ferdinand Heinz and Melanie Ward-Warmedinger, “Occasional Paper

Series No.52/2006 – Cross-border labour mobility within an enlarged EU”

Jason Long and Joseph Ferrie, “Labour mobility” – Oxford Encyclopedia of

Economics History.

Piyasiri Wickramasekera, “International Migration Papers 57 – Asian labour

migration: issues and challenges in a era of globalization”

Robert J. Carbaugh, International Economics – 10ed (Thomson Publishing).

October 25, 2010