ThA ,Lo


INTERNATIONAL MIGRATION FOR EMPLOYMENT


Working Paper

















INTERNATIONAL LABOUR MIGRATION
AND INTERNATIONAL DEVELOPMENT


by

Charles W. Stahl


International Labour Office, Geneva







MIG WP 1


INTERNATIONAL MIGRATION FOR EMPLOYMENT




Working Paper
















INTERNATIONAL LABOUR MIGRATION
AND INTERNATIONAL DEVELOPMENT


by


Charles W. Stahl


Note: This is a Working Paper issued by the International
Migration for Employment Branch. It is circulated
informally in a limited number of copies to stimulate
discussion and critical comment. It is restricted
and should not be cited without permission.


January 1982
















) International Labour Organisation, 1982


ISBN 92-2-102980-8







The designations of countries employed, which are in
conformity with United Nations practices, and the
presentation of the material in this paper do not
imply the expression of any opinion whatsoever on the
part of the International Labour Office concerning the
legal status of any country or territory or of its
authorities, or concerning the delimitations of its
frontiers.

The responsibility for opinions expressed in ILO
Working Papers rests solely with their authors, and
their circulation does not in any way constitute an
endorsement by the International Labour Office of the
opinions expressed in them.


Copyright







TABLE OF CONTENTS
Page

A. FOREWORD, by W. R. Bbhning

B. INTERNATIONAL LABOUR MIGRATION AND INTERNATIONAL
DEVELOPMENT, by C. W. Stahl

Introduction .. .. .. .. ........ .. .... .... 1

PART A: THE ECONOMIC CONSEQUENCES OF LABOUR EMIGRATION

I. Policy and the gain from labour emigration .. .. ........ 4

a. Individual versus social objectives ...... ... ... 4
b. Choice of perspective and the gain from labour emigration .. .. .. 5


II. Labour emigration: its social benefits and costs .... .. .. 6

a. Managing remittance inflows .. .. .... .. ..... .... .. 7
b. Output and employment consequences of labour emigration .. .. .. 11

1. Short-run output and employment effects .. .. .. .. .... 12
Non-marginal emigration .. .. .... .. .. .. .. .. 13
Unemployment and factor substitution .. .. .. ..... .. .. 15
The loss of human capital ................. 18
Economies of scale ....................... ... 19
Government expenditure and emigration .. .. .. .. .. ... .. 19
Remittances and rural output .. ................. 20
2. The impact of emigration on investment and growth: the
long-run consequences of labour emigration .. .. .. .. .... 22

c. Emigration and skill formation .. .. .. .... .. .. ....... .. 26
d. Emigration and urbanization ..... .. .. .. .... ..... .. 32
e. Temporary versus permanent emigration .. ............ .. 34

III. Development objectives and the gain from labour emigration .. 36

IV. Conclusions to Part A ........ .. .............. 38

PART B: LABOUR IMMIGRATION AND THE "DEVELOPMENT GAP"

I. Introduction .. .. .. .. .. .. .. .. .... .. .. .. .... 40

II. Labour immigration and income distribution ............ 41

III. Labour homogeneity and immigration policy. ............. 43

IV. Immigrant labour and economic stability .. .. ........... 47

V. Immigration and the savings on human capital .......... 50

VI. The costs of immigration ... ... ................ 52

Conclusions.. ............... .... ... ...... .. 55

Notes ..... .. ..... .. ... .. .... .. .. .. .. 57

References ............ .. .... .. .......... 67








- ii -


A. FOREWORD




This is the first working paper of the ILO's International Migration

for Employment Branch. The objectives of the Branch are to contribute

to (1) the evaluation, formulation and application of international migra-

tion policies suited to the economic and social aims of governments,

employers' and workers' organizations, and (2) the increase in equality of

opportunity and treatment of migrants and the protection of their rights

and dignity. Its means of action are (a) research and reports, (b) tech-

nical advisory services, (c) technical co-operation, (d) meetings, and

(e) work concerned with international labour standards. The Branch also

collects, analyses and disseminates relevant information and acts as the

information source for ILO constituents, ILO units and other interested

parties.


This new working paper series continues the Migration for Employment

project working paper series which formed part of the ILO World Employment

Programme between 1975 and 1981. A set of selected WEP research working

papers is available in microfiche form for sale to the public.


C.W. Stahl's paper provides a wide-ranging evaluation of the impact

of contemporary labour migration on both countries of origin (assumed to

be of low-income developing countries) and countries of employment. The

author shows that the effects of emigration depend, not only on the volume,

characteristics and permanence of the flow of human resources, but also on

the kind of policies which governments may be able to adopt to reinforce

or counter the direct and indirect effects, as well as on the constraints

they face in certain circumstances. He further argues that, in contrast

with the neoclassical framework of analysis, the international movements

of labour from poor to rich countries tend to widen the development and

income gap between them.




January 1982 W. R. Bbhning























B. INTERNATIONAL LABOUR MIGRATION
AND INTERNATIONAL DEVELOPMENT*




Charles W. Stahl


(Department of Economics
University of Newcastle
New South Wales 2308
Australia)


















I am grateful to Roger Bbhning, Ko Doeleman,
Ross Garnaut, Jerry Huguet, Percy IP and Jack
Wood for useful comments on earlier drafts of
this paper.
















Introduction



Conventional economic theory would view international economic migration from

poor to wealthy countries as a resource flow which, like trade in commodities, should

be mutually beneficial to the participating countries and should reduce inequalities

between them.1 The potential benefits of labour emigration, from the perspective of

those remaining behind, are: the acquisition of scarce foreign exchange; the relief of

unemployment and underemployment; an increase in national income per capital with a

possible consequent increase in the rate of saving, investment and hence growth;

and, with the return of emigrants, the acquisition of skills which are essential to the

development of an industrial base. The potential benefits of labour importation to the

wealthy country are also considerable. Labour immigration can reduce shortages in

particular occupations, ensuring a more complete use of industrial capacity and hence

improving profitability. It can augment the expansion of industrial capacity by ensuring

that industries will have a labour force of sufficient size to man newly created

capacity. By increasing the supply of labour it can prevent wage inflation in those

industries suffering from labour shortages. It can postpone and ease the costly

structural transformation toward more capital-intensive production which the emergence

of a labour shortage can necessitate. This, of course, reduces the country's cost of

remaining competitive internationally.Z Insofar as the size of the immigrant labour

force can be controlled through legislative or administrative measures, the receiving

country can adjust its labour supply to accord with business cycles, avoiding the need

to support from the public purse large numbers of unemployed. It gives to labour

importing countries access to labour power without having to incur the costs of







- 2 -


rearing, educating and training that labour power.



Such is the basis of the claim of mutual gain from international migration. The

claim that international migration will reduce international inequalities rests on the

hypothesis that international migration will, in the short-run, increase the ratio of

physical to human resources in the country of emigration while reducing that ratio in

the country of immigration. In the long-run the claim of increasing equality is based

on the hypothesis that there will be an increase in the rate of investment in the

labour-sending country relative to the investment rate in the labour-receiving country.



Yet theoretical potentialities often are stifled by the realities of a complex

socio-economic milieu. The purpose of this paper is to evaluate the extent to which

international labour migration is mutually advantageous to the labour exporting and

labour importing countries and serves to reduce inequalities between them. The paper

is divided into two parts. Part A focuses on the developmental consequences of

labour emigration with a view toward the formulation of policies which can shape

those consequences into a positive force for development. It is a taxonomy in the

sense that a wide variety of the potential benefits and costs generated by labour

emigration are discussed. However, no claim is made that all of the potential benefits

and costs discussed will be realized by an individual country experiencing labour

emigration. In Section I of Part A the issue of private versus public choice relative

to emigration is discussed. Section II focuses on what is to believed to be the major

economic benefits and costs of labour emigration. In particular, there are discussions

of the economic consequences of remittances and the output and employment effects of

labour emigration. In addition, the issues of emigration and skill formation, emigration

and urbanization, and variations in the impact of emigration according to its type are

discussed. Section III is concerned with influence of development objectives on the







-3 -


valuation of the costs and benefits of labour emigration. As mentioned, throughout

Part A policies will be outlined by which emigration countries can increase the

benefits from labour emigration and reduce the costs arising from it. The conclusion

of Part A is that uncontrolled labour emigration is not necessarily advantageous to an

underdeveloped country. However, through appropriate policies, losses can be turned

into gains by a maximization of the benefits and a minimization of the costs stemming

from labour emigration.



Assuming that appropriate labour emigration policies can be implemented so that

gains can be assured, there is still the fundamental question of the extent of those

gains relative to those realized by the labour importing countries. To reiterate, what

is at issue is not only whether international labour migration is mutually advantageous

to sending and receiving countries, but the relative distribution of the gains from

trade in labour services between countries of labour emigration and immigration. This

is the subject matter of Part B. The major conclusion of Part B is that, contrary to

what received theory would predict, international labour migration between poor and

wealthy countries will augment international inequalities. This raises the issue of

distributive justice and points to a moral obligation on the part of labour importing

countries to give some form of recompense to those countries whose labour they use.







- 4 -


PART A: THE ECONOMIC CONSEQUENCES OF LABOUR EMIGRATION





II. POLICY AND THE GAIN FROM LABOUR EMIGRATION



A. Individual versus Social Objectives



In general, a principal motivation underlying the decision to emigrate is the

individual's desire to improve his circumstances and probably those close to him. The

decision-making process involves the weighing up of the many benefits and costs

associated with migration.3 Unless information about conditions in the prospective

country of immigration is incorrect, incomplete or uncertain, the decision to emigrate

should result in the individual achieving the objectives underlying the migration

decision: the individual expects to gain from emigration. In short, assuming an

opportunity for employment abroad exists, emigration will result if perceived benefits

exceed perceived costs, where costs and benefits are broadly defined to include non-

-economic as well as economic considerations.4,5



However, the maximization of individual private objectives is not necessarily

consistent with the maximization of the broader objectives of society. Often,

individual decisions have social repercussions which only marginally, if at all, affect

the individual whose action generated those repercussions. Except for those persons

with an exceptional degree of social conscience, one cannot expect an individual to

enter into his personal decision-making matrix those costs and benefits flowing from his

migration decision which do not accrue directly to him and perhaps those closest to







- 5 -


him. In short, labour emigration gives rise to externalities, to a divergence between

private and social costs and benefits.



The fact that labour emigration does generate externalities raises a fundamental

socio-politico question. To what extent should society impose constraints on the

individual to ensure that the outcome of his decisions are consistent with broader

social objectives? In the particular case of labour emigration the question is should

those in authority prevent or constrain emigration in the pursuit of what are conceived

to be broader social objectives? Theoretically, we can distinguish between economic

emigration and emigration attributable to other circumstances, e.g. political, religious,

and/or social repression. However, in reality the distinction can be difficult

to make.



B. Choice of Perspective and the Gain from Labour Emigration



Another philosophical consideration concerns the weights which national planners

attach to the benefits and costs accruing to different individuals affected by labour

emigration. When assigning such weights, if a national perspective is taken then all

costs and benefits accruing to the citizen abroad and upon return would be added to

the social benefits and costs. If a domestic perspective is taken then any benefits

and costs which accrue specifically to the emigrant while outside his home country do

not count in the calculation of social costs and benefits. Only the benefits and costs

which the emigration decision confers upon those remaining behind count. However,

once the migrant returns any benefits and costs which continue to accrue to him

because of his migration enter into the calculation of social benefits and costs. For

example, if emigration leads to skill acquisition which improves the migrant's

productivity upon return, then the discounted difference between the migrant's current







- 6 -


and past productivity is counted as a social benefit of emigration. Of course,

remittances sent home and savings brought back by the migrant are social benefits. A

domestic perspective would be adopted if the position is taken that the principle aim

of economic development should be that individuals are not forced to leave their

socio-cultural-linguistic milieu to realize their economic aspirations. Insofar as the

migrant enhances his country's ability to achieve this end and other development

objectives, his migration yields social benefits. It is this perspective which is taken in

this paper.





HI. LABOUR EMIGRATION: ITS SOCIAL BENEFITS AND COSTS



As mentioned above, received economic theory would predict that labour

emigration from poor to wealthy countries should result in a gain to the country of

emigration, where a gain is defined as benefits less costs. However, generalizations

are difficult to make about the magnitude of the gain to be expected. It depends on

variables whose value will differ amongst countries. More specifically, the

developmental consequences of labour emigration will depend on factors such as: the

magnitude of remittances and returnee savings; the effect of emigration on domestic

output and employment; the effect of emigration on the rate of savings and investment

and growth; the degree of skill formation of emigrants while abroad; the impact of

emigration on urbanization; and the type of emigration. While these are viewed as the

most important considerations, the list is not intended to be exhaustive of the factors

influencing the developmental consequences of labour emigration.







- 7 -


A. Managing Remittance Inflows



A major source of potential benefit from labour emigration is the flow of

remittances sent home by emigrants while abroad and the savings with which they may

return. As would an expansion of commodity exports, remittances and returnee

savings, which will be collectively referred to as remittances below, provide the basis

for an increase in the transfer of real resources from the rest of the world to the

labour emigration country. Abstracting for the moment from any possible adverse

consequences which labour emigration may have on domestic industry, it can be viewed

as a uniquely inexpensive way of acquiring scarce foreign exchange. Generally, to

increase foreign exchange earnings a country has to export more commodities. Unless

excess capacity exists in the export sector, this will require an increase in investment.

Indeed, remittances may free a country from a developmental "Catch 2Z"-a shortage

of foreign exchange may be hampering an expansion of capacity in the export sector

essential to provide the foreign exchange basis for long-run development. Thus in

some countries remittances may play a key role in the relief of production bottlenecks

attributable to foreign exchange shortages.



This potentially beneficial effect of remittances cannot be disputed. However,

to ensure that remittances make a contribution to long-run development, while at the

same time avoiding their potential contribution to short-run economic instability, will

require careful fiscal and monetary management.



The inflow of remittances can be conceived of as a transfer payment made to

domestic households from abroad for the supply of labour services. Its expenditure







- 8 -


will expand aggregate demand in accordance with the value of the multiplier. The

expansion of aggregate demand working through the initial increase in household income

may be reinforced by an expansion of investment activity. The source of expansion in

investment demand stems from the potential effect of the inflow of foreign exchange

on the money supply and credit. The initial increase in commercial bank deposits

following upon the inflow of foreign exchange creates the basis for an expansion of

the money supply. If unfettered by the monetary authorities, credit will be expanded

with a probable consequent increase in the level of investment and a possible further

increase in consumption demand.8



The increase in aggregate demand stemming from the inflow of remittances

will be divided between domestic output and imports, the division being dependent on

the productive structure of the economy, tariffs, quotas and the exchange rate, to

name some of the principal considerations. An issue of particular importance is the

extent to which the remittance-induced rise in demand for domestic consumer and

investment goods can be satisfied by an increase in their supply. Will the increase in

demand elicit a corresponding supply response from domestic producers, or will it

simply cause a rise in prices? Despite the shortages of resources which exist in the

typical LDC, and the rigidities and immobilities which characterize their allocation, it

is possible that some expansion of supply will result from the remittance-induced

increase in aggregate demand. This may occur because in poor countries many

production bottlenecks can be attributed at least partially to foreign exchange

shortages. Thus an inflow of foreign exchange in the form of remittances may permit

an increase in imports of capital equipment and other strategic inputs which, when

combined with unemployed labour, will permit an expansion of supply in response to the

increase in aggregate demand.9







-9-


While it is recognized that the response in domestic supply will vary widely

amongst countries experiencing a remittance-induced increase in aggregate demand, it

is probably fair to say that it is most unlikely that the increase in real output will

match the increase in demand. Whether this excess demand manifests itself in

inflationary pressures depends on whether it applies to traded or non-traded goods and

the foreign exchange regime adhered to by the government. One of the advantages of

a liberal foreign exchange regime is that inflationary pressures, at least amongst

tradeable goods, can be contained. Of course, such a policy cannot prevent

inflationary pressures from emerging in the non-traded goods sectors. Empirical studies

on expenditure patterns out of remittances indicate that a considerable proportion of

remittance-induced expenditures are on non-traded goods such as land, housing and

education (Connell, et al., 1976; Rempel and Lobdell, 1978; Connell, 1980; Lipton, 1980;

Oberai and Singh, 1980; World Bank, 1980). Thus the hypothesis of Bohning (1975),

which was criticized by Griffin (1976), that remittances may result in inflationary

pressures appears to have some merit.



Looking toward the longer-run developmental value of remittances, there has

been particular concern over how remittance income is used-whether is is invested or

spent on consumer goods. The empirical studies mentioned above indicate that the

marginal propensity to consume out of remittance income is very high. But one should

not conclude on the basis of these studies that the value of remittances to long-run

development is negligle. In many LDC's foreign exhange-control systems are designed

to accord with development objectives. If a major objective of development policy is

to secure a faster rate of growth, then fiscal and monetary authorities are unlikely to

be indifferent as to the composition of imports financed from an inflow of

remittances. In particular, the authorities may want to ensure that a greater

proportion of the newly acquired foreign exchange is allocated to the import of








- 10 -


investment goods than would be the case if the market decided the composition of

imports.10



However, the control of the division of imports between investment and

consumption goods by use of an exhange-control system is not without its costs. A

policy which constrains consumer goods imports must necessarily increase their price.

Moreover, part of the excess demand for consumer goods imports will vent itself in

the domestic consumer goods sector, pushing up prices for those goods also, particularly

if their supply is price inelastic. A problem associated with any foreign exchange

regime which relies on non-price rationing devices is that excess demand for foreign

exchange may result in the emergence of a black market in foreign currency, or an

expansion of black market operations in those countries where they already exist.11

Moreover, it creates the conditions for large personal gains to be made by those

responsible for approving foreign exchange applications.



Continuing to abstract from any possible adverse impact that labour emigration

may have on domestic industry, the conclusion of this section must be that while

remittances provide a uniquely inexpensive source of foreign exchange, its inflow will

require careful management to avoid short-run instability and to ensure that it

contributes to long-run development. If foreign exchange remittances are used

principally for the import of consumer goods then their long-run developmental value

will be limited. Some may view the latter possibility with little concern. After all,

the inflow of remittances still contributes to an increase in material welfare.

However, if the emigration of labour impairs the short-run or long-run productive

capacity of the economy, then one should be seriously concerned. It is to this latter

possiblility that we now turn.







- 11 -


B. Output and Employment Consequences of Labour Emigration



One of the conventional arguments favouring labour export is that it is an

inexpensive and rapid method of relieving unemployment. As such, it is an

understandably attractive policy option for developing countries facing significant levels

of unemployment and underemployment. The Philippine Government, for example,

actively engages in the promotion of contract labour export through the facilities of

the Overseas Employment Development Board. The Bangladesh and Pakistan

Governments likewise promote labour export. Other countries tacitly promote labour

export by making it easy for prospective workers to obtain necessary documentation

for emigration. It is my purpose in this section of the paper to focus on the

hypothesis that emigrants are drawn from the ranks of the unemployed or, if employed,

are easily replaced. Therefore, their movement should have no adverse consequences

for domestic output in the short-run or long-run. The discussion will be divided into

two parts. In the first part the discussion will centre on the short-run output and

employment effects of labour emigration. It is argued that the important

considerations in the short-run include: whether the migrant was employed or

unemployed; the value of his output relative to his personal consumption; the cost of

his replacement if employed; the effect of emigration on industry cost structure; and

tax payments of the emigrant prior to departure relative to his consumption of public

goods. The second part of the discussion will focus on the long-run output and

employment effect. Here it is argued that the impact of labour emigration depends

essentially on its effects on the domestic savings rate and the population growth rate.



Before proceeding an important caveat needs to be stated. A decline (rise) in

per capital income of non-emigrants as a result of emigration does not necessarily imply







- 12 -


a decrease (increase) in economic welfare. If the emigrant's output was greater than

GDP per capital (average output), then his departure would reduce GDP per capital.

But this does not imply that those remaining are producing any less per capital than

prior to employment. In fact, if the emigrant whose output was in excess of GDP

per capital was being paid more than the value of his output then his departure would

actually increase per capital income of the remaining population.





1. Short-Run Output and Employment Effect



Let our point of departure be a neo-classical perfectly competitive scenario.

The assumptions underlying this scenario are: emigration is marginal, i.e. it has an

imperceptible effect on the size of the domestic labour force; there is full

employment; labour and capital are two homogeneous factors of production and are

substitutable; workers are paid the value of their marginal product; and there are

constant returns to scale. Once we have evaluated the impact of emigration under

this scenario we will replace the assumptions underlying the analysis with ones which

are more realistic to see how sensitive the analysis is to particular assumptions.12



Under the perfectly competitive scenario, as discussed by Grubel and Scott

(1966a), emigration should be neutral in its economic impact on the remaining

population. Given the assumptions of the model, an emigrant is paid exactly the

value of what he produced. Furthermore, their numbers were not of sufficient

magnitude to have any effect on income distribution. Hence nobody is better off and

nobody is worse off.







- 13 -


a. Non-marginal emigration



However, for many developing countries emigration involves a sufficiently large

percentage of the workforce to require a relaxation of the assumption that emigration

has an imperceptible effect on the size of the labour force remaining behind. A

relaxation of the assumption does change the results obtained, given the remaining

assumptions underlying the analysis. As was recognized by Berry and Soligo (1969) and

Romans (1974), a "non-marginal" level of worker emigration will result in a loss,

collectively, to those remaining behind. For example, if the emigrating workers own

no capital there will be a redistribution of income in favour of wage earners.

However, the gain of the wage earners will not be sufficient to compensate for the

loss of the owners of capital. Thus, collectively, society loses, given the remaining

assumptions underlying the scenario.



Lucas (1979), however, recognizes that the finite (non-marginal) migration and

domestic loss argument depends crucially on an implicit assumption that as emigration

proceeds the rising capital-labour ratio must cause labour's productivity to rise and

capital's to fall. Lucas points out that Johnson (1967) has shown that labour export

may induce a change in the output mix of the economy away from labour-intensive

goods toward capital-intensive goods, increasing the reliance on the capital stock and

thus restoring the pre-emigration relative productivities of labour and capital. If this

were to happen then the labour exporting country would not suffer any long-run

disadvantage, given the remaining assumptions underlying the analysis. Lucas (1979)

appears to have confidence that this change-in-output-mix and restoration-of-relative-

productivities argument will be a reality, particularly for small open economies.

However, as Griffin (1974) emphasizes, such may be the case for wealthy countries

with the high rate of investment necessary to affect a shift in output mix over time







- 14 -


toward capital-intensive products, but it is unlikely to apply to developing countries

with low rates of investment. The point is that the existing capital stock is not an

infinitely divisible and totally homogeneous factor of production which can be molded

to fit any size labour force and produce any output mix. The production of capital-

intensive goods requires technology which differs from the technology used to produce

labour- intensive goods. A substantial proportion of this different technology is

embodied in new capital equipment which implies that the shift in output mix is

predicated upon new investment.



Another tacit assumption underlying the finite-migration-leading-to-a-loss argument

is that emigrants leave their capital (assets) behind. However, there does exist the

possibility that emigrants may take their assets with them (Johnson, 1967; Berry and

Soligo, 1969). The welfare effect of this action on the remaining population depends

on whether non-emigrants own the same amount of capital per head. To elaborate, if

emigrants own more capital per head than non-emigrants then emigration will result in

a fall in capital stock per remaining worker, implying a decline in productivity and

income. In this case, we can think of capitalists emigrating and workers remaining

behind. If, however, emigrants own less capital on average than the remaining

population then emigration will increase the capital stock per worker and depress

profit rates. In this case it is workers who are emigrating to the detriment of

capitalists remaining behind, but since all those remaining behind are relatively larger

capitalist than those emigrating, those remaining must be worse off. Only under the

circumstance that non-emigrants and emigrants own the same amount of capital per

head will labour emigration not have a detrimental impact arising from labour

emigration. There exists a final possiblility. If migrants own more capital per head

than the remaining population, and if they leave their capital behind, then the

capital-labour ratio will rise leading to a collective improvement in productivity and







- 15 -


income per capital.





b. Unemployment and factor substitution



The emigration of unskilled and unemployed labour is likely to confer a gain

upon the country of emigration. By virtue of their membership of a nuclear family,

an extended family, a community or society in general, the unemployed usually have

some claim to a portion of the group's product. They consume but do not produce.

Their emigration frees that portion of GDP which they consumed for an alternative

use, be it consumption or investment. Moreover, government expenditures, recurrent or

planned infrastructure, will no longer have to be incurred for those choosing

emigration. The savings could be diverted to more directly productive government

expenditures. In rural areas emigration of the unskilled and unemployed would increase

the land-labour ratio, possibly improving productivity, income and hence the capacity

for investment and growth.



However, if emigrants were employed then the benefits and costs imposed by

their departure are somewhat more complex. In this case the key considerations are

the ease with which the emigrant can be replaced by the farm or factory which loses

him and the value of the emigrant's former output relative to his personal

consumption. If not easily replaced the loss of labour will be reflected in a short-run

decline in GDP. Abstracting from remittances for the moment, if the emigrant

supported dependents then the value of that support must be reckoned as a loss to

society, to those remaining behind. Moreover, if the emigrant was paid a wage less

than the value of his marginal product then society loses further.








- 16 -


The existence of unemployment means that sectors losing labour through

emigration may be able to replace that labour from the ranks of the unemployed. In

reality, however, labour is not a homogeneous factor of production. In fact, it is

highly differentiated on the basis of skill. Hence the existence of unemployment in

general is consistent with shortages of particular skills. For any particular industry

the cost of labour replacement depends upon the labour supply situation in the skill

categories relied upon by that industry. If emigration leads to shortages in particular

skill categories then those firms affected will either have to bid that type of labour

away from competitors, and in the process drive up wages, or replace lost workers

with imperfect substitute labour. Labour substitution, of course, involves training

costs, the magnitude of which depends on the degree of suitability of replacement

labour. The more imperfect the substitute the longer will be the training period and

the greater will be direct training costs and lost output. Some types of skilled labour

obtain the greater portion of their skills through formal education. A firm losing this

kind of worker may be hard pressed to find a replacement, while substitution through

on-the-job-training would be too costly to contemplate. Output may recover as a

result of the substitution of capital for labour, but this requires an initial investment

expenditure which would not have been necessary had labour not emigrated.



This discussion indicates that the perfect-competition-scenario assumption of two

homogeneous factors of production may obscure some important considerations in our

evaluation of the consequences of labour export. In particular, if we allow for

different levels of skills amongst workers then we admit the possiblility of

complementarity as well as substitutability amongst workers. Insofar as skilled and

unskilled labour are complementary factors, e.g. bricklayers and machinists need

unskilled labourers if their skills are to be continuously applied throughout the working

day, then a shortage of one will reduce the productivity and employment of the other.







- 17 -


Allowing for the possibility that different types of labour are complementary to each

other has important implications with regard to the gains from international migration

for both the sending and receiving countries. It may well be that if poor labour-

abundant countries are to specialize in the production of unskilled labour-intensive

goods for export they will probably require a minimum amount of skilled labour to

complement their unskilled labour. If this minimum skill input is lost through

emigration then the country may find its international competitive position in

commodity trade seriously eroded. In short, trade in skilled labour services may be at

the expense of trade in commodities. It lies within the realm of possibility that the

loss of foreign exchange because of lost export production due to the emigration of

skilled workers may exceed any foreign exchange earned through the export of labour

services. Unfortunately, empirical evidence indicates that much labour emigration is

amongst skilled and semi-skilled workers.13



This admits the possibility that emigration can generate unemployment from the

supply side as well as from the demand side. That is, in addition to depressing

aggregate demand and hence output through a loss of spending power, emigration may

lead to an output loss and unemployment in those industries which cannot find workers

to replace emigrants.



Once again, however, there is the theoretical possibility that firms losing labour

may substitute capital for that labour, i.e. change their technique of production;

alternatively, the loss of labour may be overcome by a change in the output mix

toward those products which save on the factor in short supply, in this case labour.14

Unfortunately, both require considerable investment, the availability of a variety of

technological alternatives and, in the case of changing the output mix, an assurance of

market outlets for the new products. These options may be well in the grasp of a








- 18 -


wealthy developed economy and could be implemented in a relatively short period of

time. For poor countries, however, with low rates of investment, limited technological

choice and formidable barriers to entry into international markets, such flexibility is

severely circumscribed.15





c. The loss of human capital



The possible loss of key skilled workers through emigration raises the issue of

emigration leading to a social loss through the loss of human capital. It is frequently

argued that labour emigration represents a loss to society because of the considerable

expense involved in rearing, educating and training a worker. However, such costs are

historical or "sunk" costs. As such they should have no bearing on society's decision

to export workers, assuming society elected to control emigration through policy. Only

if society was deliberately creating human capital for export would it be correct to

account for such costs. With regard to unplanned emigration, society is concerned

only with the social benefits and costs which are generated by that movement. To

elaborate further, in what sense could one say that society loses materially through

the export of an unemployed worker? Yet that unemployed individual may embody in

the form of human capital a substantial amount of society's past resources. His

emigration will cause no material loss to society.



One could view any social product resulting from an individual's effort which is

in excess of what that individual consumes now or in the future as society's return on

their investment in that individual. Insofar as emigration leads to a loss of this

excess product, society loses. But what society is losing is the return on their

investment in human capital, not the capital itself. For once invested in an individual








- 19 -


that capital cannot be used for any other purpose. Moreover, unlike physical capital,

human capital does not even have a scrap value.



What is true is that labour importing countries gain substantially from the use

of labour power for which they did not have to pay the (human) capital costs. But

their gain is not mirrored in an equivalent loss to the sending country.





d. Economies of scale



One of the characteristics of industrial production is the ability of firms to take

advantage of economies of scale. In these circumstances firm expansion leads to a

decline in unit cost of production. Herein lies a potential problem for the economy

exporting labour. If a firm is unable to secure labour for plant expansion because of

labour emigration, or if a firm which was realizing economies of scale loses labour,

then such firms may be placed at a competitive disadvantage. This may present

particular difficulty for those firms competing in the international market. A loss of

foreign exchange may be the result. The loss of foreign exchange from lost exports

may conceivably exceed the additions to foreign exchange from remittances and

returnee savings.





e. Government expenditure and emigration



There are two further considerations which will vary in importance amongst

countries of emigration. First, if the difference between taxes paid by the emigrant

and his consumption of public goods is positive it implies that the emigrant was








- 20 -


subsidizing the public good consumption of others. The loss of this subsidy is a cost

of emigration to society. Second, if there are economies of scale in the provision of

public goods then emigration will increase the average cost of public goods per

non-emigrant. For example, the cost of building and operating a hospital of 1000 beds

is less than twice the cost of providing a 500 bed hospital. The construction of a

highway capable of accommodating 10,000 cars per hour is not twice as expensive to

construct as a highway designed to accommodate 5,000 cars per hour. Any increase in

the average cost of providing non-emigrants with public goods must be considered a

social loss attributable to labour emigration.





f. Remittances and rural output



To focus on the rural sector, it has been argued that emigration will, by

increasing the land-labour ratio, increase per capital output in the rural economy.

Normally, an increase in the rewards to effort, which would be the case if

productivity rose with an increase in the land-labour ratio, will lead to an increased

application of effort. Thus, theoretically, two forces should work to improve the

income of those remaining in the rural sector. First, the productivity rise generated

by the increase in the land-labour ratio will, ignoring distributional considerations,

increase per capital income, even without the commitment of further social effort.

Second, the increased productivity means an increased reward per unit of effort which

should manifest itself in an increase in individual labour input, implying a further rise

in per capital output.



However, when we allow for an inflow of remittances into the rural economy

the actual effect of emigration on rural productivity may vary from that predicted by








- 21 -


conventional theory. The problem is that a portion of remittances may be consumed ir

the form of leisure time. Theoretically, if remittances are large enough and

agricultural labouring is viewed as too arduous, remittances could wholly substitute for

income from agricultural efforts. Such a dramatic decline in agricultural output

following upon an inflow of remittances is, of course, unlikely. However, it does

underscore the possibility that remittances may, to an extent, serve as a substitute for

income based on agricultural efforts.16 If agricultural output did decline substantially

it is possible that a great portion of the foreign exchange remitted would have to be

used to import foodstuffs, thus diverting foreign exchange from investment possibilities

to consumption.



It is not being argued that emigration and remittances will not increase the

material welfare of the remaining rural population. Substantial rural emigration will

increase land-labour ratios, improving productivity and hence welfare. Although output

per capital will likely rise, total output will undoubtedly fall if emigrants were

previously productively employed. Remittances, by adding to income and hence

changing income-leisure preferences, will, most likely, further add to the decline in

total agricultural output, although there will be a further rise in per capital income.

Thus, if not overly selective of the most productive of rural workers, and if associated

with an inflow of remittances, labour emigration from rural areas should improve

material welfare, at least in the short-run. This improvement in rural collective

welfare is, however, likely to augment income inequality (Connell, et al, 1976; Connell,

1980; Lipton, 1980). Migration, particularly international migration, can be an

expensive venture. Clearly, it is going to be the relatively better-off households

which will be more capable of taking advantage of the opportunities afforded by

emigration. Although increased inequality is an undesirable potential outcome of

emigration, the concomitant potential rise in rural income may be associated with a








- 22 -


spread effect which may reduce the numbers in absolute poverty, another seemingly

universal development objective.



On an economy-wide basis labour emigration and its associated inflow of

remittances leads, in the majority of cases, to the substitution of an external source

of income for an internal source based on domestic productive efforts. Such a

substitution is consistent with a rise in economic welfare. It may even be the case

that a national income based partly on remittances may not only be larger, but also

more stable than one based wholly on domestic production. Yet a constant concern

must be the possibility that future emigration opportunities may diminish, and perhaps

rather suddenly.17 If this were to happen, and if emigration, over time, impaired

indigenous productivity growth, then the short-run material gains deriving from

emigration will have been at the expense of long-run development. If this possiblility

is admitted then labour export may become a questionable tool of development. At a

minimum it is a measure requiring a careful evaluation of its likely impact on future

domestic productivity. We now turn to this issue.





2. The Impact of Emigration on Investment and Growth: The
Long-Run Consequences of Labour Emigration

Another conventional argument in favour of labour emigration is that by removing

unproductive consumers emigration frees previously consumed resources which may be
18
channeled into investment, improving developmental prospects.18 The conventional

argument also sees the inflow of foreign exchange in the form of remittances and

returnee savings as a source of investment funds. This latter argument assumes

particular importance for those economies in which investment is hampered by a

shortage of foreign exchange. However, to begin the discussion of these hypotheses







- 23 -


concerning the long-run economic consequences of emigration, let us initially abstract

from the possible inflow of remittances and savings.



The long-run economic consequences of emigration depend essentially upon its

impact on the domestic saving rate and the population growth rate. If emigration is

permanent and if emigrants had a higher rate of saving on average than the remaining

population and/or a smaller number of children per household then, in the long-run, per

capital income of the remaining population will decline.19



Still ignoring remittances, temporary emigration may effect the domestic savings

rate in another way. It is likely that the greater proportion of temporary emigrants

will be workers who do not own capital. If they were employed prior to emigration

and if their replacement proves costly or impossible, then their movement is likely to

depress both the rate and magnitude of profits in the economy. If the propensity to

save out of profits is greater than the propensity to save out of wage income, then

the domestic saving rate will decline, having adverse growth consequences.



If emigration is permanent and continuous then any decline in the rate of saving

may be offset by a reduction in the growth rate of the population. The net result,

in terms of the long-run trend in capital per worker, depends on the relative

magnitudes of the decline in the two variables.



This scenario is altered by allowing for an inflow of remittances and emigrant

savings. The injection of remittances and savings will counteract any initial tendency

for aggregate demand to subside as a result of emigration. If the initial decline in

demand is more than compensated for by the remittance-induced increase in demand

then profits will rise. In ordinary circumstances this should provide farms and







- 24 -


factories with the stimulus to invest. If, however, emigration has led to labour

shortages then investment plans may be frustrated by a lack of manpower essential to

man new capital equipment or cultivate new lands. Alternatively, farms and factories

may invest in labour-saving technology which would allow them to respond to the

growing demand despite labour shortages. This alternative may not auger well for the

future, however. Opportunities for temporary emigration may be reduced, creating the

need to absorb returning workers into the domestic economy. If, however, firms have

invested heavily in labour-saving technology, the labour absorptive capacity of industry

will be reduced. Thus, paradoxically, a country which responds to its unemployment

problems by promoting labour export may, in the long-run, end up with a even greater

unemployment problem.



Another argument implicit in much of the discussion surrounding these issues is

that labour is homogeneous and hence there is no difference between emigrant and

non-emigrant labour. This is certainly not the case. Even the most cursory

examination of the demographic characteristics of international migrants indicates that

the emigration process is highly selective, favouring young males. Such selectivity can

assume particular importance in the rural sector. One of the obstacles to rural

development is an accommodation to poverty through resignation. Those unwilling to

accept poverty as a permanent reality are an exception in poor countries. Migrants

are that exception. It is the young in rural areas who are most susceptible to new

ideas which can promote development. It is their actions and attitudes which can

motivate others. Their emigration removes a force for change and consolidates the

power and influence of an established village authority which accepts stagnation.



This loss of quality manpower could be compensated for by the inflow of

investible funds in the form of remittances. In fact, it has been argued that







- 25 -


migration can improve rural growth prospects by generating an inflow of remittances

which can overcome shortages of rural finance and accelerate rural capital formation

(Berg, 1965; Griffin, 1976; Stark, 1976; Byres, 1979). On a theoretical plane, drawing

on received microeconomic and macroeconomic theory, it seems logical that a rise in

rural income should lead to a rise in savings and investment. But things are usually

more complicated than they initially appear. Rural capital formation is dependent on

considerations other than the supply of investible funds. Two important additional

factors are the system of land tenure and marketing opportunities (Ip and Stahl, 1978).

Empirical studies (Connell, et al, 1976; Rempel and Lobdell, 1978; Connell, 1980;

Lipton, 1980; Oberai and Singh, 1980) support this proposition with their findings that

expenditure patterns out of remittances reflect the poverty of recipients and a lack of

rural investment opportunities. Other empirical studies indicate that much of the

regional variation in the rate of investment out of remittances can be explained by

variations in land tenure arrangements.ZO In certain circumstances remittances may be

a prime mover with regard to improving rural development prospects while in other

circumstances they may be detrimental to development prospects by substituting

remittance income for income based on self-reliant development. The problem is that

the substitution may work in only one direction, with the prospect of an irreversible

dependency on external income.



This discussion was not intended to be a negative exercise. The purpose of the

exercise was to point out that a policy of labour export can give rise to negative

effects for long-run growth. At the same time the inflow of remittances can prove to

be a valuable source of scarce foreign exchange and could contribute to the country's

eventual achievement of a level of development sufficient to absorb its entire labour

force. In the end, the extent to which labour export improves a country's

development prospects depends on the policies the government is pursuing with regard







- 26 -


to emigration in particular and development in general. For example, if the planning

authorities are ignoring a rural sector dominated by an unenterprising feudal landed

aristocracy with land holdings heavily concentrated in the hands of the wealthy, then

remittances to the rural areas will have little impact on rural capital formation.

Alternatively, neglect of the rural sector may mean that the infrastructure essential

for marketing output does not exist. In this case also one cannot expect remittances

to flow into rural capital formation, regardless of the land tenure arrangements. With

regard to capital formation in general, the inflow of foreign exchange combined with

import controls and policies to stimulate investment may result in a considerable

portion of the newly acquired foreign exchange being used for the import of

investment goods. However, if a black market exists in foreign currency then a

significant source of foreign exchange is lost from the banking system and with it any

control over its use.



In sum, the longer-run developmental consequences of labour emigration depends

largely on the emigration policies and overall development strategy being pursued by

the government.





C. Emigration and Skill Formation



Conventional theory views economic development as a process involving structural

changes in the economy. It is hypothesized that over time an increasing proportion of

national output will be attributed to the production of industrial commodities. It is

envisaged that the production of these commodities will take place in a "modern" urban

sector and rely increasingly on capital equipment embodying advanced technology.

Modernization of the agricultural sector will also require the introduction of more







- 27 -


sophisticated production techniques along with massive infrastructural investment. To

effect this modernization and its associated structural changes, the economy will need

to invest heavily in "human capital". A growing number of professional, skilled and

semi-skilled workers will be needed if the pace of the structural transformation is not

to be impeded. Yet the formation of "human capital", like physical capital, requires

society's resources. The cost of educating and training workers is substantial. Not

only is there the direct training cost which must be incurred for an extended period

of time, but the training period will be associated with a smaller level of output

relative to what could be achieved if the trainee worked full time.



It is because the formation of human capital requires society's resources that

advantage is seen in the possibility that emigrant workers may obtain their skills

abroad, at the expense of another country. Hence a widely held hypothesis is that

labour export will be advantageous because the country of emigration is, in effect,

acquiring free human capital (upon the return of the emigrant). This hypothesis can,

however, be questioned on a number of grounds.21 First, the hypothesis implicitly

assumes that the set of jobs open to immigrants in wealthy countries requires a level

of skill which exceeds the level initially possessed by the typical immigrant. It is

envisaged that immigrants can obtain skills by exposure to industrial work and

on-the-job training. Immigrants may also climb the job ladder and in the process

acquire further skills. However, much of the evidence amassed relevant to this

hypothesis indicates that the jobs open to immigrants are generally unskilled although

not necessarily low paying; are on the lower rungs of the social job ladder; offer

little opportunity for advancement or skill acquisition; involve hard work which is

usually carried out in an unpleasant working environment; and, are surrounded by a

considerable degree of uncertainty (Piore, 1979, Chapter 2). This is not to imply that

some immigrants are not successful in moving up the social job ladder and in the







- Z8 -


process acquiring skills. As Bbhning (1975) and Piore (1979) argue, however, these

immigrants are among those least likely to return home. The reasoning being this

hypothesis is that the process of skill acquisition necessarily entails some degree of

cultural assimilation, since skills acquired on-the-job by the immigrant will most likely

be taught by indigenous workers. A failure of the emigrant to be accepted by his

indigenous counterparts will interfere with or preclude his acquisition of skills. That

failure will increase the desire to return. Success in skill acquisition implies a

reduction in cultural conflict and with that reduction a removal of one of the prime

motivating factors in return migration. Thus those migrants with the greatest

propensity to return may be those that acquired the least amount of skill.



The fact that emigrant workers may not acquire skills during the work

experience abroad admits the possibility that "de-skilling" could take place. The

mechanism posited here begins with the fact that it is generally the relatively better

educated and better-off who are in a position to take advantage of emigration

opportunities. As such they probably possess some type of skill. Yet it is also

possible that the set of jobs open to them in the receiving country may not permit

them to apply those skills, at least initially, let alone obtain a higher degree of skill.

If the skilled immigrant remains in a low skilled job on the lower rung of the social

ladder for some time, perhaps because of an inability to culturally assimilate or due to

racial discrimination, his skills acquired before emigration could be diminished or lost

altogether. In this case emigration would lead to a destruction rather than a creation

of human capital.



Another tacit assumption underlying the hypothesis that emigration is

developmentally advantageous because it leads to skill formation is that emigrants will

employ skills acquired abroad upon their return. This is a questionable assumption.








- 29 -


First, much of the motivation for emigration is to amass capital to establish a business

upon return. Given the imperfections in financial markets, shortages of finance and

usurious rates of interest in the informal financial markets in poor countries, this is an

understandable motivation underlying emigration. However, the skills needed to run the

business financed through emigration may bear little relationship to the skills possessed

by the emigrant before departure or those acquired abroad. In fact, the newly

established business could quite conceivably be efficiently operated by someone with no

skills at all, and would be if it were not for the barriers to entry erected by the

imperfections in the indigenous financial markets. In this case, also, emigration could

lead to a loss of human capital.22 Second, smooth economic reintegration of the

returning migrant may not take place. One must bear in mind that the emigrant often

earns five to ten times more than he could in a similar occupation at home. It is

difficult to imagine that upon his return he will immediately resume work in his

previous occupation or one reliant upon newly acquired skills, at such relatively low

wage rates. Rather, it is quite possible that he will look for some business

opportunity, with the results discussed above obtaining; or, even worse, he may

consume his savings with the intention of emigrating again once his savings are

exhausted.



The issue of social and economic reintegration assumes particular importance for

the rural emigrant. Much international migration takes the form of rural workers in

poor countries emigrating to take up urban industrial jobs in wealthy countries. Over

time these emigrants will be continually exposed to the amenities of urban life in a

wealthy country, as well as to ideas and customs alien to their socio-cultural milieu

back home. Upon their return these former rural dwellers may find re-integration

difficult. As some empirical evidence indicates, they may change their view of

agricultural labour, now believing it to be beneath their status.23 If a means of







- 30 -


acquiring income other than agricultural labouring cannot be found in their rural

homeland and/or if the returnee can no longer tolerate rural life, he will most likely

migrate to an urban area within his own country. There he may have to live off his

savings and/or work in the informal sector. The consumption of savings is a loss of

investible funds, while the loss of rural output due to the returnee being no longer

willing to participate in the rural economy may well exceed his output in the urban

sector.Z4



Much of contemporary international migration is the movement of workers from

the Middle-East, South Asia and South-East Asia to the Middle-Eastern oil producing

countries. The preponderance of these emigrants are skilled and semi-skilled

construction workers. It is unlikely that their emigration would lead to a "de-skilling".

In fact, the opportunity to work on infrastructural developments may provide useful

skills which could be in demand in their own countries. However, the issue raised

above as to whether these emigrants would be willing to return to jobs which will pay

substantially less remains an important empirical question.



This discussion was intended to point out the pitfalls in conventional thinking on

the issue of emigration and skill formation. That emigration may result in less human

capital formation than was originally anticipated, and that it may in some cases cause

a loss of skills, points to the need not to neglect this issue when formulating labour

export policies. From a policy perspective several measures could be employed which

would enhance skill formation through emigration and provide some assurance that those

skills would be employed when the migrant returns. For example, insofar as the

labour demand patterns in the labour importing countries permit, unskilled (and

unemployed) labour should be given emigration priority. A current problem facing the

majority of countries of labour emigration is that private and government recruiters are







- 31 -


skimming the cream of the labour force for export. In the case of the South Asian

and South-East Asian countries, many semi-skilled and unskilled positions in the

Middle-East are being filled by skilled recruits, most of whom are employed prior to

emigration. A great number of the positions they are filling could be filled by

unskilled labour. This presents two problems. First, insofar as skilled and semi-skilled

workers are taking unskilled positions, a "de-skilling" process may be taking place.

Second, insofar as there is some learning-by-doing in the position, the emigration

country would benefit by placing unskilled workers in those positions, i.e. selecting the

right workers for the right jobs could ensure that emigration did result in a positive

addition to the emigration country's stock of human capital. Ensuring that returnees

do not take up positions below their skill levels, or that they do not refuse to work

altogether, is more problematical. A possibility is that permission to take up overseas

employment in a particular occupation could be made contingent upon the emigrant

signing a bond that he will, upon return, work in an industry needing his skills for a

specific period of time. Enforcement of the provisions of the bond may, however,

prove to be an insurmountable administrative problem, as well as opening up the

possibility of exploitation of returnees.



What should emerge clearly from this discussion is that the issue of emigration

and skill formation is considerably more complex than the prevailing conventional

hypothesis admits. Empirical work on this question remains to be done. Beyond this

is the issue of emigration and urbanization. In the proceeding discussion we hinted at

the possibility that emigration could accelerate the rate of urbanization in poor labour

exporting countries. Let us now focus attention on this issue.







- 32 -


D. Emigration and Urbanization



An issue which has attracted interest across academic disciplines and, indeed,

outside the academic arena is that of rural to urban migration. Demographers,

geographers and economists have attempted to explain it. Political scientists,

sociologists and town planners have been concerned with its consequences. The

underlying theme or motivating force behind the bulk of the research concerning this

issue is that rapid urbanization is undesirable. The general thrust of the argument is

that rural to urban migration exceeds the capacity of the urban economy to generate

jobs. The result is increasing unemployment and underemployment. That urban areas

are becoming the domicile for so many poor non-tax paying people is seen to be

stretching urban infrastructure beyond its limit. In particular, the overcrowding and

unsanitary conditions are generating potentially serious health problems and, in general,

potentially explosive socio-politico problems.



International migration may be adding to the urban problems of third world

countries. The problem has two facets: First, recruitment for overseas employment

tends to be centralized in the largest cities. For example, very few of the many

recruiting firms operating in the Philippines would recruit outside of Manila.25 If one

grants that the Todaro (1969) thesis is empirically meaningful, then the offer in the

central city of high wage employment overseas must increase the economic

attractiveness of rural to urban migration and hence the rate of rural to urban

migration. What is occurring is that a great many individuals from the provinces are

coming to the central cities, where recruiters have their offices, and register for

overseas employment. Because of delays in post and travel, recruiters, with registrants

far in excess of the number they can hopefully place, are usually reluctant to write








- 33 -


letters to the provinces informing a registrant that a position is available and then

waiting for his uncertain arrival. Those on the spot get the jobs. Thus not only do

workers from the provinces have to come to the central city to register, but they

must wait in the city if they want to maximize their opportunity for employment.



The second facet of the problem stems from emigrants originating in rural areas

returning not to the rural sector upon their return from abroad but to the urban

areas. The explanations for this "two-stage" migration are varied, as discussed above,

and can be social and/or economic.



If countries promoting labour export are also facing problems associated with

rapid urbanization then some thought needs to be given to policies to prevent

international migration from compounding their urban difficulties. Policies to deal with

the first facet of the problem are easily conceived; the second facet of the problem

is not so readily controlled. To overcome the problems arising from centralized

recruitment, the government could force recruiters to obtain their workers from

government employment offices. In the majority of countries government employment

exchanges are spread throughout the country. Workers registering in their province

could state if they desired overseas work. Recruiters could then approach the central

office with their requests for workers. Using a central filing system the central

office could then fill recruiters requests by drawing workers from the various regions

on the basis of whatever criteria is laid down by the central planning authority.26

Although one can easily conceive of policies to prevent recruitment from compounding

urban difficulties, it is difficult to conceive of policies to curtail rural to urban

migration among returnees, except perhaps through draconian laws controlling population

movement in general, such as the South African pass-laws.








- 34 -


E. Temporary Versus Permanent Emigration



From the preceding discussion we have learned that remittances, if channeled by

appropriate policy, may be the major source of any benefits flowing from labour

emigration. We have also seen that labour emigration may add somewhat to the stock

of human capital through skill acquisition abroad, again depending much on emigration

policy. Moreover, we have seen that if emigrants leave their savings (assets) behind

and return home with additional savings, there is the possibility, and again depending

on policy, that emigration may lead to an increased rate of capital formation and

hence income growth. It should be readily apparent, however, that these possible

benefits are based on the assumption that emigrants return. Thus a critical variable

relating to the impact of labour emigration is the type of emigration. Permanent

emigrants are less likely to send remittances, and when they do they are likely to be

of a smaller magnitude in comparison to those sent by temporary migrants. As well,

with permanent emigration there will not be the inflow of savings with which

temporary emigrants return. It is also probable that permanent emigrants will take

their savings with them upon emigration. As we have seen above, this will most likely

lead to a social loss.



In the long-run the economic impact of labour emigration depends on its effect

on the national savings rate and the rate of population growth. Herein lies a

particular difficulty pertinent to the issue of the type of emigration and the impact of

emigration. It is important to realise that the majority of countries accepting

permanent immigrants carefully screen applicants, placing a premium on skills and

education. Given this screening process, it is likely is that emigrants receiving

permanent resident status in another country had, in their country of origin: (a) a








- 35 -


higher than average level of skills and education; (b) a per capital savings rate which,

because of their higher income, exceeded the national average; and, (c) had, or woulu

have had, a smaller number of children per capital. It is also probable that they were

employed prior to emigration. As skilled workers they would have been highly

complementary to unskilled workers. As such, their loss would, at least in the

short-run, generate unemployment among their unskilled associates. The long-run losses

generated by their emigration would be even more pronounced. First, insofar as they

serve as vehicles for the dissemination of skills and technical knowledge their

emigration would reduce the rate of formation of human capital. Thus not only are

their skills lost in the short-run, but long-run skill formation may be stifled. Second,

insofar as their savings are higher than the per capital average, investment per capital

will decline with detrimental consequences for income growth. Third, although their

departure initially reduces the size of the population, if their rate of family formation

was less than average then the rate of population growth will rise. In the longer

term this implies, for a given rate of investment, a decline in capital per worker and

hence productivity and income per capital. Fourth, as higher than average income

earners the permanent emigrants may have paid a level of taxes higher than their

consumption of public goods. Fifth, insofar as permanent emigration causes skill

bottlenecks, the economy's capacity to respond to growth-promoting stimuli is reduced

while the risk of inflation and balance of payments problems associated with any

stimulus are enlarged concomitantly.



In the case of the temporary loss of skilled emigrants these negative effects at

least have the chance of being offset by an inflow of remittances, returnee savings

and the possibility of enhanced human capital, if appropriate policies are pursued.








- 36 -


IV. DEVELOPMENT OBJECTIVES AND THE GAIN FROM LABOUR EMIGRATION



One can list the numerous social benefits and costs deriving from labour

emigration. Yet a valuation of those benefits and costs is considerably more complex.

Many of the benefits and costs cannot be measured directly in money terms. Their

valuation requires an explicit statement of national development objectives and the

planning parameters pertaining to those objectives.27



An often stated orientation of development planning is to achieve the fastest

possible growth in real output per capital consistent with a reduction in unemployment,

inequality and absolute poverty. This orientation is comprised of essentially four

objectives: growth, employment, poverty alleviation and a more equitable distribution

of national income. Let us assume that a government promoting labour export finds

that, as a result of remittances, per capital income rises and unemployment declines.

The remittances may have a spread effect which results in a reduction in the numbers

living in absolute poverty. However, the departure of labour may reduce domestic

output per capital although it increases real income (as a result of remittances whose

value is greater than lost output). Moreover, labour emigration may, as some studies

have found, result in an increase in inequality since it may be only the relatively

better-off and educated who can take advantage of overseas employment opportunities.

Under these circumstances there is a conflict amongst objectives which cannot be

resolved unless planning parameters are specified which allow one to place a value on

a unit reduction in unemployment, poverty, inequality, and growth. But any such

values cannot be based on objective criteria; rather, they reflect the value judgements

of those who determine them.


Another area of contention concerns the patterns of expenditure out of








- 37 -


remittances and returnee savings. It is often argued that a substantial portion of

remittances and returnee savings are "squandered" on consumption goods, particularly

imported consumption goods. It is true that a higher rate of saving out of

remittances should increase the rate of investment and growth of national output.

However, an increase in current consumption may also be an important national

objective. Given this latter objective, the consumption of remittances adds to the

social benefits of emigration. If, however, the over-riding objective is growth of

domestic output, then the expenditure of remittances and returnee savings for

immediate consumption impedes the attainment of that objective by reducing funds

available for investment.Z8 To complicate matters, it may be that both higher future

consumption, which requires a greater saving effort, and higher current consumption

are viewed as desirable. To properly value current consumption relative to future

consumption requires specification of a social rate of discount, another planning

parameter, which is based on subjective judgement.



The point of the discussion is that the researcher can only point out the

potential benefits and costs associated with labour emigration. He cannot ojectively

evaluate those costs and benefits without specific knowledge of the nation's development

objectives and the parameters pertinent to those objectives. Under one set of

objectives and parameters emigration may lead to a net social gain while under

another set it may lead to a net loss.



The benefits and costs of labour emigration are dependent also on emigration

policies. One of the principle purposes of this paper is to outline the many potential

benefits and costs of labour emigration so that research into them might be undertaken

and policies implemented to ensure that, insofar as is possible, the benefits of labour

emigration are maximized while its costs are minimized. Thus the very act of








- 38 -


implementing labour export policies will affect the "impact" of labour emigration.29





V. CONCLUSIONS TO PART A



The proceeding discussion was an attempt to examine the hypothesis that trade

in labour services like trade in commodities should result in a gain to the emigration

country. The conclusion must be that it is not altogether clear that this must

necessarily be the outcome. Particularly in the case of the permanent emigration of

skilled and professional labour it is evident that their loss may impose severe social

costs upon the remaining population while any benefits from their emigration are likely

to be minimal. At the other extreme, the emigration of unskilled and unemployed

labour on a temporary basis could yield substantial developmental benefits. In general,

the remittances sent home by workers may improve consumption standards and augment

investment. The savings with which they return can, through carefully designed policy,

be channeled into capital formation. Without adequate policy, however, the

developmental value of remittances and returnee savings can be easily lost. If not

channeled into meaningful development projects to counteract the negative effects of

emigration, the economy is likely to become increasingly dependent on emigration and

remittances over time. Although per capital income may rise over time with increased

emigration, it is an income source subject to the uncertainties surrounding the

immigration policies of foreign governments.



While a gain from labour export seems probable, it is difficult to generalize

about the magnitude of the benefits and costs. They are functionally related to a

large array of variables. The size of the coefficients on these variables and indeed

the magnitude of the variables themselves will differ considerably amongst countries.







- 39 -


What warrants emphasis is that the value of many of the coefficients and variables

which determine the magnitude of benefits and costs can be manipulated through

emigration policies and development strategies. Their correct manipulation may

augment the gain from emigration. This possibility establishes as a priority the need

for countries engaged in labour export to study in detail its effects on their

economies and societies. It is hoped that a number of the issues raised in this paper

will aid in focusing those studies.



With regard to the issue of the gain from labour emigration, a final matter

merits attention. While it may be that emigration countries individually experience a

net gain from the export of labour services, it is also possible that collectively they

may be made worse off. By permitting their workers to be imported into the

capital-rich countries they have allowed many of the relatively labour- intensive

industries to remain profitable. Without access to foreign labour those industries would

have faced a wages explosion which would have forced them to relocate in low wage

countries, go out of business or invest heavily in new plant and equipment in an

attempt to substitute capital for labour.30 By shifting to LDC's, rather than importing

their labour, these industries, for a given amount of investment, would have provided

more employment opportunities to the labour forces of the LDC's than has been

provided through migrant labour.The same applies to the export of labour services to

the capital surplus countries of the Middle East. Without masses of foreign labour

employed on infrastructural and industrial developments, surely some portion of the

surplus capital would have found its way directly or indirectly through international

financial channels into investments in poor labour exporting countries. Thus in a

global context trade in labour services may not be to the collective advantage of poor

countries.








- 40 -


PART B: LABOUR IMMIGRATION AND THE "DEVELOPMENT GAP"





I. INTRODUCTION



The standard Heckscher-Ohlin-Samuelson factor proportions theory of trade sees

free trade in commodities leading to an equalization of factor incomes.31 This

theoretical revelation, based on neoclassical economic theory, was nothing short of

revolutionary in its conception of economic relations between rich and poor nations.

Prior to this theory it was held that the only way to ensure a reduction in

international inequality would be to redistribute the world's population in such a way

that the capital/labour and land/labour ratios across countries would generate the same

per capital income. Given this theoretical orientation it is understandable that the

majority of economists would view international migration from poor to wealthy

countries as a mechanism promoting a reduction in international inequalities. Their

view would also be accepted by the majority of non-economists. It seems intuitively

obvious that if people emigrate in substantial numbers from poor countries the ratio of

physical to remaining human resources should rise, leading to a rise in per capital

income. Conversely, if immigration into wealthy countries assumes large enough

proportions then the ratio of physical to human resources should decline, leading to a

decline per capital income. It is for these reasons that international labour migration

would be seen as a means of reducing international inequalities.32



However, just as the hypothesis that free trade will equalize factor incomes

internationally is based on a set of idealized assumptions, so is the hypothesis that

international migration will lead to a reduction of international inequality. Two







41 -



assumptions particularly important to both theories are that there exists two

homogeneous factors of production (labour and capital) and that government intervention

does not interfere with and over-ride the advantages to be reaped. Moreover, the

hypothesis ignores distributional considerations. Specifically, a decline in per capital

income because of immigration is consistent with an improvement in the per capital

income of the indigenous population.



Let us first deal with the issue of immigration and income distribution.

Following upon that discussion attention will be focused, in Section III, on the

significance of the assumptions of labour homogeneity and non-interference. In Section

IV the contribution of immigrant labour to economic stability will be discussed. A

concentration solely on the effects of international migration on international income

equality would neglect the fact that migration can lead to a significant wealth

transfer from poor to wealthy countries in the form of human capital. This issue will

be dealt with in Section V. Of course, the benefits of immigration are not secured

without some costs. Thus in the final section we will examine the costs of labour

immigration.





II. LABOUR IMMIGRATION AND INCOME DISTRIBUTION



In a neoclassical world the immigration of a substantial ("non-marginal") number

of workers will depress overall per capital income, assuming that the elasticity of

output with respect to labour is less than one. It is by this means that immigration

is seen as a possible equilibrating mechanism with regard to international incomes.

However, the theory ignores distributional considerations. It is quite possible, indeed

likely, that any decline in GDP per capital following upon immigration will be







- 42 -


associated with a rise in the income level of the indigenous population. What must be

remembered is that it is the indigenous population that owns the land and capital

which will be combined with immigrant labour. While immigration will, theoretically,

depress wage levels it will at the same time increase profits. Thus while it is

possible that indigenous wage earners could be made worse off in the short run, it can

be shown that their loss could be compensated for out of the gain in profit, with

profit makers still being better off (Berry and Soligo, 1969; Romans, 1974). Thus as a

group the indigenous population is better off because of immigration.33



All of this assumes that immigration does make a discernable addition to the

labour force. If it does not then in the neoclassical framework immigration will not

confer benefits upon the indigenous population. Of course, labour immigration into

those countries actively pursuing such a policy does make a substantial contribution to

the size of the labour force. Using numbers of immigrants into the major European

immigration countries reported by Werner (1977), I have calculated that in 1975 the

weighted average of foreign labour as a percentage of the total labour force in each

of the countries was 9.25 per cent.34 In South Africa, a major importer of African

labour, foreign Africans made up 14.35 per cent of the total African labour force in

1979 (Stahl, 1980). According to Birks and Sinclair (1980, p. 132), the share of

foreign workers in the total labour force of the capital rich states of the Arab region

were Saudi Arabia 43.0 per cent; Libyan Arab Jamahiriya 42.5 per cent; Kuwait 69.4

per cent; United Arab Emirates 84.8 per cent; Oman 34.0 per cent; Bahrain 39.6 per

cent; and Qatar 81.1 per cent. For the capital-rich Arab countries taken as a whole,

the percentage of non-nationals in the workforce was 48.7 per cent. In terms of

numbers this amounted to 1,719,700non-nationals in .1975.



In each of these cases it can be claimed that foreign workers are a







- 43 -


substantial addition to the domestic labour force of the countries of immigration. Yet

even if one could show that this immigration has depressed GDP per capital or has a

least slowed its growth, this would not be inconsistent with a substantial gain accruing

to the indigenous population, collectively.





II. LABOUR HOMOGENEITY AND IMMIGRATION POLICY



The assumption that labour is homogeneous would imply that there is no

discernible difference between immigrant and indigenous labour and hence that they are

perfect substitutes. The implication is contradicted by empirical evidence.



The fundamental purpose underlying a policy of economic immigration is to

enhance the ability of a country to achieve particular national objectives, and the

usual over-riding objective is an improvement in the economic welfare of its nationals.

If imported labour were a perfect substitute for indigenous labour then immigration

would depress wage levels, making the indigenous workforce worse off. It is difficult

to envisage how any government, except for the most repressive regimes, could pursue

a policy of immigration which over time made the indigenous workforce objectively

worse off. Rather, it is most likely the case that immigration is controlled and

selective such that immigrant workers end up in those industries experiencing labour

shortages.35 In the case of industrial labour importing countries where plant-level

unionization of workers is prevalent, unions of indigenous workers are likely to come

to "sweetheart" deals with their employers such that the wages and conditions of their

members are improved as part of a package deal which includes the hiring of "cheap"

immigrant labour. In support of these propositions Blitz (1977) found that in the Federal

Republic of Germany foreign workers earned on average five per cent less, worked six







- 44 -


per cent more and had shorter holidays than their German counterparts. Thus

empirical studies such as those by Dante and Pauga (1972) and Kindleberger (1967),

which show that an increase in the employment of foreign workers retards wage rises

in affected industries, are not inconsistent with a redistribution of an industry's total

wage bill in favour of indigenous workers.



Epstein (1974) relaxes the assumption of homogeneity of labour in the context of

a general equilibrium model and shows that indigenous labour can benefit from

immigration. Even Usher (1977), who tries his best to dismiss the gains from labour

immigration by forcing his analysis into a strict neoclassical two factor framework,

admits to the complementarities between new immigrants and original residents. Thus,

although the owners of capital undoubtedly gain through labour immigration, it is most

likely that, collectively, the indigenous workforce will also gain from labour

immigration.



We have seen that the two factor neoclassical model, by assumption, does not

admit the possibility of complementarities between immigrant and indigenous labour. As

a consequence, the use of such a model to evaluate the gains to labour immigration

can seriously understate those gains. Yet the reliance on the two factor neoclassical

model leads to further difficulties. The model views labour and capital as substitute

factors whose ratio in production depends only on their relative prices. What must be

realized is that the demand for imported labour derives from industries in which the

desired rates of investment and growth are being constrained by labour shortages, or in

which there is excess capacity because of labour shortages. In a neoclassical world

such labour shortages would be overcome by a substitution of capital for labour.

However, such flexibility in the choice of technique of production is far removed from

microeconomic realities. Not only are the number of alternative techniques available







- 45 -


to a particular firm usually severely limited, but the cost of scrapping existing

equipment and replacing it with new equipment embodying new technology may be

prohibitive. Under these circumstances a reservoir of importable foreign labour can be

a valuable asset.36



In a situation of either generalized or industry-specific labour shortages a policy

of labour immigration will be aimed at increasing the utlilization of capacity and/or

easing the labour constraint on capital formation. Thus immigration can be a key

element in stimulating investment. By creating a climate of economic expansion,

moreover, labour immigration can be a key variable in attracting international capital

inflows and curbing capital outflows (Mendez and Moro, 1976). With regard to curbing

capital outflows it is important to emphasize that this is a double benefit to the

labour importing country. It gains in the first instance by not losing capital, an

occurrence which would have a negative multiplier effect. In the second instance the

country gains because of the positive multiplier effect associated with immigrant-

induced capital formation. A further positive multiplier effect will be associated with

the inflow of foreign capital into investment opportunities in the labour importing

country.



The two factor model also abstracts from the fact that output embodies many

inputs other than capital and labour. Many of these other inputs are complementary

to labour. For example, workers need materials, power, tools, water and, importantly,

labour's input and output must be supervised. Thus the marginal expense to a firm

hiring an immigrant worker is not only his wage. In addition, his employment will

entail payments being made to the suppliers of the capital equipment and other

complementary inputs with which the immigrant will work. The expenditure of incomes

arising from the immigrant induced increase in real output, i.e. wages, interest income,







- 46 -


rental charges and profits, will generate a multiplier effect throughout the economy,

enlarging upon the firm's gain from hiring immigrant labour. The extent of this

multiplier effect depends on several considerations: First, insofar as part of

immigrant's wages are remitted, a portion of the initial round of expenditure flowing

from the increase in real output will be lost. This will reduce the value of the

multiplier effect. The extent of the reduction depends on what proportion of the

value of additional output goes to immigrant labour and the percentage of immigrant

wage income remitted. Second, the increase in aggregate demand flowing from the

increase in real output may not be satisfied if those industries experiencing a rise in

demand are suffering from labour shortages. In this case the increase in demand will

spill over into imports and/or price increases with the consequence that the full value

of the multiplier effect, in terms of stimulating further additions to real national

output, will not be realized. Of course, it may be that labour shortages were specific

to those industries responsible for the initial increase in output and that the pattern

of demand emerging from the new expenditure will be directed towards domestic

industries capable of supplying that demand. Alternatively, if those industries

experiencing increased demand for their output are also faced with labour shortages,

that shortage may also be resolved through labour imports and/or capital labour

substitution. In the end, the value of the multiplier and hence the benefits flowing

from an immigration-induced increase in the real output of consumption and investment

goods remains an empirical question.



Despite the speculation about the value of the multiplier and hence the extent

of economic benefits accruing to the indigenous population because of labour

immigration, it can be said with a high degree of certainty that whatever benefits are

received far exceed those received by the labour exporting countries. There are

several reasons for this statement. First, whatever the value of the multiplier in the







- 47 -


wealthy labour receiving country it will most likely exceed the multiplier in the poor

labour sending country.37 Second, empirical evidence indicates that a considerable

portion of immigrant wages are spent within the country of origin. Insofar as this

expenditure is on domestically produced goods then the benefits of the expenditure are

internalized.38 Third, labour immigration is the sine qua non for output expansion and

investment. Labour immigration is virtually certain to stimulate investment whereas

labour emigration may not necessarily. Yet not only will the preponderance of new

investment stemming from international migration take place in the labour importing

countries. As well, the wealthy labour importing countries will produce most of their

own investment goods whereas the poor countries will import most of their's. Thus

not only does the poor country realize only a fraction, if any, of new investment

attributable to international labour migration; but, unlike the wealthy country, the poor

country is not in a position to internalize the economic benefit flowing from that

investment expenditure.





IV. IMMIGRANT LABOUR AND ECONOMIC STABILITY



It should be clear that industries suffering from labour shortages find great

value in the ability to draw upon immigrant labour. Immigrant labour allows these

industries to expand output by increasing the rate of capacity utilization and/or expand

that capacity through investment. In both cases the benefits of output expansion are

spread throughout the economy. Yet the wider social benefits of labour importation do

not end here. In addition, the ability of a country to draw upon a pool of foreign

labour confers a degree of economic stability not normally achieved by economies

which have to produce their own labour supply. There are several reasons why

immigrant labour tends to reduce economic instability. First, labour immigration may







- 48 -


prevent an economy from coming into the grip of inflation. Second, it can postpone

and ease costly structural adjustments which labour shortages can give rise to. Third,

a considerable portion of the infrastructural expenses associated with an indigenous

workforce is avoided by the use of imported labour.39 Let us discuss each of these

in turn.



A potentially important source of inflation is a rise in the cost of production.

For example, industry-specific labour shortages are likely to drive up wage costs in

those industries which will probably manifest themselves in price rises. It will not

take too long for these price rises to become generalized, particularly if the industries

initially affected produce the inputs for other industries. Given the traditional

approach to macroeconomic management pursued by most of the advanced economies,

one could anticipate the introduction of restrictive monetary and fiscal policy in

response to the emerging inflationary pressure. Rising interest rates and cuts in

government expenditure will exercise a deflationary influence on the economy,

increasing unemployment. This policy might strike it lucky and reduce wage pressures

in those industries which originally had a labour shortage. It is also possible,

however, that the labour shortages will persist and unemployment instead is increased

within those occupations and at those locations where there were no previous labour

shortages. Labour importation can quickly and effectively prevent these occurrences.

By helping to prevent inflation it protects those in society most vulnerable to its

economic ravages. By eliminating the government's perceived need to apply restrictive

monetary and fiscal policy, it saves the jobs of those who would have had to bear the

cost of that policy. By eliminating upward pressure on interest rates it keeps the

cost of investment down and the quantity of investment up.


Emerging labour shortages and rising wages normally require structural changes







- 49 -


within an economy. On the one hand, there will be pressure to change techniques of

production in order to economize on scarce labour. On the other hand, the economy

will be forced to change its output mix toward the production of those products which

embody less labour relative to capital. In general, there will be mounting pressure for

production to become more capital intensive if firms are to retain both their domestic

and internationalcompetitiveness. In both cases the outlay of funds necessary to

effect this structural transformation will be considerable. The faster the

transformation is carried out the more costly it becomes. It is in this regard that

access to foreign labour can result in enormous savings to the labour importing

country. First, by preventing labour shortages and wage inflation labour immigration

allows industries to continue to use existing plant layouts and production processes

which would be uneconomical at higher wage rates.40 Third, by easing cost pressures,

labour importation gives firms a breathing space to effect structural changes; and,

again, the longer the time firms have to change their technology and/or output mix

the easier will be the financial burden of so doing.



There is another source of benefits to the indigenous population deriving

particularly from the use of temporary immigrant labour. First, there are considerable

savings on social welfare programmes designed to protect the indigenous workforce

against sickness and unemployment during their working life and provide security during

their retirement, but which are not available to the immigrant workforce. When the

contract of a Filipino worker in Saudi Arabia ends, when the Basuto mineworker in

South Africa is severely injured in the mines, or when the illegal Mexican migrant to

the United States becomes to old to retain employment, none can expect financial

support from the Government of the country to which they provided their labour

services. Generally, the sick, unemployed and aged have no option but to return to

their country of origin. Second, the temporary immigrant worker does not usually







- 50 -


bring his family along, often by choice but more often because of legal barriers. As

a consequence, even though the immigrant pays the same taxes as his indigenous

counterpart, society does not have to provide his dependents with schooling, hospital

care, roads, parks or the myriad other public goods a country provides to the

dependents of its indigenous workforce. The savings to the Government of the host

country from these sources could be channeled into more directly productive investment

and/or used to reduce the taxes levied on the indigenous population.





V. IMMIGRATION AND THE SAVINGS ON HUMAN CAPITAL



The discussion in the preceding sections should leave little doubt that

immigration should, under all but the most unrealistic set of assumptions, result in

substantial material benefits to the indigenous population. However, the indigenous

population reaps benefits in addition to the immediate increase in their material living

standards. Specifically, the country importing human capital saves the cost of having

to produce that human capital itself.



Studies abound on the benefits accruing to countries of immigration due to their

acquisition of human capital. Recently, a study on the benefits and cost of guest

worker immigration into the Federal Republic of Germany was undertaken by Blitz

(1977). He calculated how much the Federal Republic had saved on child rearing and

education expenses by not having to provide for itself the number of migrant workers

it employed. Multiplying this saving times the long-run average propensity to save he

calculated the possible level of investment which could have been generated through

these savings. On this basis and looking at the period 1957-1973 he calculated that

by 1973 these savings would have generated additional capital of DMZ7.721 billions at







- 51 -


1973 prices or 1.04 per cent of the wealth of the Federal Republic of Germany in

1973. Apel, Baade, and Kindleberger have all emphasised the large benefits accruing

to the Federal Republic due to the post-war influx of refugees who embodied human

capital which was paid for elsewhere.41



Neal and Uselding (1972) studied the effects of immigration on American

economic growth over the period 1790-1917. They concluded that by 1912, 13-42 per

cent of the capital stock in the U.S. could be attributed to the savings on child

rearing and educational expenses resulting from immigration (p.87). Grubel and Scott

(1966b) have estimated that for the period 1949-61 the U.S. received from all

countries $1,045 million in scientific and engineering manpower alone. The U.S.

House Committee on Foreign Affairs (1974) found that savings in human capital

formation costs made possible by the immigration of technical, professional and kindred

personnel from LDC'S was $850 million annually for 1971 and 1972.42



Canada has also benefited greatly from its access to free human capital. De

Voretz and Maki (1980) have estimated that the value of human capital transferred

from LDC's to Canada during the period 1967-73 was $2,369 million. In his recent

analysis of mass poverty, Galbraith (1979) also sees the international migration as a

dynamic force for development. He argues that the role of emigration in the

development of the Federal Republic of Germany, U.S.A., Canada, Singapore

and Hong Kong has been severely under-estimated.







- 52 -


VI. THE COSTS OF IMMIGRATION



It would be foolish to deny that the substantial benefits accruing to the

indigenous population of a country importing labour are acquired without social costs.

The main burden imposed upon the indigenous population, particularly by longer-term

immigrants, is in the area of the provision of social infrastructure, principally housing,

schools, social and medical services, roads, parks, etc (Schiller, 1975; Usher, 1977).

Undoubtedly, increased demand for housing as a result of immigration will raise its

cost in the short-run; increased demand for schools, the use of public transport,

medical services, etc, will lead to pressures on these types of social infrastructure and

cause some inconvenience to the indigenous population. To restore the supply of these

social goods to their original per capital level would require considerable social

expenditure. It is in this sense that immigration imposes an economic cost on the

indigenous population.



However, to look soley at the demand side when evaluating the impact of

immigration on the provision of public goods is to commit a grave error in analysis.

What must also be taken into account is that immigrants pay taxes out of their

earnings; and, as mentioned above and further elaborated below, tax payments per

capital of the immigrant population probably exceed those of the indigenous population.

Moreover, their employment generates hitherto unrealized income for all of immigrant

labour's complements in production- incomes which will also be taxed. Furthermore, in

many countries the increased value added in those firms hiring immigrant labour will

also be subject to taxation. This increase in tax revenue represents a capacity of the

government to expand the supply of public goods. Before one could come to a

conclusion regarding the gain or loss in social goods provision due to immigration, one







- 53 -


w ulJ hauve to subtract the potential increase in supply of those goods, which is equal

to the increase in tax revenue, from the short-run reduction in the supply of those

goods available to the indigeneous population. When the matter is viewed in this way

the social "cost" of immigration will, in my view, give way to a considerable social
43
gain.



Let us approach this issue from a different angle. It is commonly held that

immigrants have more children on average thus placing more demands on average upon

child care and educational facilities. This belief is not not necessarily correct and

their is empirical evidence to suggest the contrary. For the Federal German Republic,

Blitz found that the number of foreign school age children per foreign worker was

0.134-0.096, where the latter figure was actual school attendance of foreign children.

In contrast, the number of German school age children per German worker was 0.36.

In Australia, migrant children (0-14 years) as a percentage of total immigration was

23.4 per cent over the period 1947-77 (Australian Bureau of Statistics, 1978). This

figure is less than for the population as a whole.



Empirical studies indicate that the labour force participation rate of the

immigrant population is considerably higher than that for the indigenous population.

Given that the ratio of producers to dependents is higher for immigrant populations,

and assuming no significant difference in earnings per worker between the immigrant

and original workforce, per capital tax payments of immigrants will exceed per capital

tax payments of the indigenous population. This higher employment-dependency ratio

for immigrants implies less demands per immigrant on funds devoted to welfare, social

security, unemployment compensation and similar support payments.


In short, contrary to representing a tax burden upon the indigenous population,







54 -



immigrants most likely subsidize the indigenous population by paying more taxes and

placing less demands, per capital, on the public purse.







- 55 -


CONCLUSIONS



On the basis of the proceeding discussion of the economic benefits and costs of

labour immigration it can be concluded confidently that a policy of labour importation

will result in substantial economic gain to the indigenous population of the labour

importing country. To reiterate, labour importation increases the rate of capacity

utilization and hence profitablility, it is the sine qua non for expansion of capacity by

investment, it can curtail inflation and enhance economic stability and save the labour

importing country the enormous cost of rearing, educating and training indigenous

workers. From the labour exporting countries' perspectives the gains from labour

emigration are somewhat more illusive. As discussed, the magnitude of benefits and

costs accruing to the sending country are very much dependent on emigration policies,

development objectives and the planning parameters pertinent to those objectives.

Although the gains from labour export can be enhanced by appropriate policy, one can

also conclude with a large degree of confidence that in all but the most exceptional

circumstances the gains in international income attributable to international migration

will accrue disproportionately to the labour importing countries. Thus the major

conclusion of this paper would be that although international migration can be mutually

advantageous to labour sending and labour receiving countries alike, as conventional

theory would predict, it will almost certainly augment international inequalities,

contrary to what conventional theory would predict.



That international migration can augment international inequalities raises the

issue of the economic justice of the migration aspect of international economic

relations.44 In a world of equal bargaining power countries of labour emigration would







56 -



realize a more equitable portion of the gains in international income attributable to

international migration. In our world, however, such inequities in the gains from

international migration can only be resolved by appeals to the consciences of labour

importing countries, appeals that hopefully will be expressed in international law in the

near future.







- 57 -


NOTES



1. The term "economic" in international migration is used to emphasize that I am

concerned with those who are migrating for seemingly economic gain, rather than those

who are forced to migrate for socio-politico reasons. Admittedly, the distinction can

become blurred in many cases. Also, from here out I will use the term international

labour migration as a synonym for international economic migration.



2. The ability of a labour importing country to maintain a competitive advantage in

labour-intensive exports, or in processes requiring unskilled operative labour, may

prevent those industries from shifting to poorer labour abundant countries. Thus

international labour migration may serve as a substitute for trade in commodities,

perhaps to the advantage of capital but most probably to the disadvantage of poor

countries.



3. Perhaps the most important variable entering into the migration decision is the

chance for economic improvement. However, as will be elaborated below, a wage

differential between the country of immigration and emigration is a necessary condition

for emigration, but it is not a sufficient condition. The opportunity to emigrate must

also avail itself in the form of demand for immigrant labour.



4. This is not to suggest that all have equal access to information or possess the

skills in demand or the finance necessary to cover the expenses of migration.



5. In several recent articles concerning international migration (Clarke, 1978; B6hning,

1981a) criticism has been directed at the hypothesis that individuals act in a rational







- 58 -


economic manner by basing their migration decision on the net outcome of a weighing

up of its benefits and costs. Clarke's criticism derives from his seeming rejection of

neoclassical economic theory. Bbhning's criticism is more substantive. Essentially,

what he is saying is that the the hypothesis that wage differential is a key variable

in the emigration decision is not a very insightful hypothesis. When economic

emigration takes place it usually involves people trying to improve their economic

welfare, but that does not really explain how emigration started. If wage differential

is a key variable then why isn't their much more international migration given the

massive disparities in income levels among countries. Obviously, immigration policies

are a very important consideration. But what is fundamentally important in explaining

international migration is what are the determinants of immigration policy.



6. There may be some reason to believe that returnee savings should be looked upon

somewhat differently than remittances. Whereas the marginal propensity to consume

out of remittances over a given time period is likely to be the same as would apply

to any increase in personal household income, this may not be the case for returnee

savings. The returnee may draw down his savings account over time so that the

marginal propensity to consume out of those savings over a given period of time may

be less than that which applies to remittances.



7. If a country is concerned primarily with growth then it will be concerned with the

relative effects on savings and investment of commodity exports versus the export of

labour services. It could be argued that a dollar of commodity exports will generate

more savings than a dollar of remittances for two reasons. First, the multiplier

applicable to a dollar inflow of remittances is less than that applicable to a dollar of

commodity exports. Second, when commodities are exported it gives rise to profit

income. Remittances form part of household income. It is generally believed that the







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marginal propensity to save out of profit income is greater than that out of household

wage income.



8. Of course, such an expansion of consumption demand and credit is not unique to

remittance inflows. The acquisition of foreign exchange by households as a result of

increased commodity exports would also serve as the basis for a potential multiple

increase in expenditure.



9. In fact, one of the constraints on expansionary fiscal and monetary policy may be

government fear of balance of payments difficulties since a growth of money income

will result in a growth of imports. However, with the additions to foreign exchange

reserves provided by remittances and returnee savings, the government may be able to

give some stimulus to aggregate demand without fear of balance of payments

difficulties.



10. The production of capital goods relies heavily on an input of skilled labour. Given

the skill requirements of the industry and the fact that the market for its output is

very limited in developing countries it is understandable that the capital goods sector

is usually one of the last sectors to develop in a country undergoing a process of

industrialization. Hence the need for poor countries to rely on imported capital

goods. Furthermore, imported capital equipment often can use only particular types of

material inputs which will also have to be imported.



11. When foreign exchange is converted on the "black market" the monetary authorities

lose control over its division between consumer and investment goods imports.







- 60 -


12. Part of the literature I review in this subsection has also been examined by

Lucas, 1979.



13. Of 750,000 Turkish workers placed abroad between 1964 and 1976, 33.7 were

classified as skilled. In Libya and Saudi Arabia semi-skilled and skilled workers made

up 62 and 48 per cent of labour imports in 1975 (Ecevit and Zachariah, 1978, p.37).

Of the 680,000 Yugoslavs emigrating to the F.R.G. between 1962 and 1971, about 35

per cent left the manufacturing sector and of those 75 per cent were skilled or

semi-skilled production workers (Bbhning, 1975, pp.268-69). Recruitment of Filipino

labour for work in the Middle-East draws heavily from the ranks of the skilled

(Abella, 1979).



14. Paine, 1974, sees the emigration of skilled workers leading to capital-labour

substitution and a reduction in the amount of funds firms are willing to commit to

apprenticeship programs.



15. For an excellent survey of the literature concerning the scope for labour-capital

substitution through choice of technique and change in output mix see Morawetz

(1974).



16. This point was at the heart of the controversy between Bohning (1975), Griffin

(1976) and B6hning 1976. Alpat (1971) reports that Turkish workers in rural areas

remit amounts sufficient to cause family members to drop out of the rural labour

force.



17. For an evaluation of future prospects for international migration in southern Africa

see Stahl (1980).







- 61 -


18. This argument is very similar to and perhaps derives from an important aspect of

the classical dual economy development models. In these models the reallocation of

surplus unproductive labour from the agricultural to the "modern" sector results in the

first instance in the emergence of an agricultural surplus which can be siphoned off

from the agricultural sector in a variety of ways, depending on the author's

ideological persuasion, to provide the wage goods necessary to pay the labour force of

the newly created modern sector.



19. This gives us some insight into some of the costs of the "brain drain"-the

permanent loss of relatively high savers with relatively low rates of family formation.



20. Piore (1979) cites studies which support this proposition.



21. cf. Bbhning, 1975; Piore, 1979, especially Chapter 2.



22. Employing the "domestic perspective" in an evaluation of the social benefits and

costs associated with this loss in human capital, society is worse off only if the

individual's productivity in his new buisness is lower than what his productivity would

have been if he would have employed his skills. (An increase in the individual's

income is not inconsistent with a decrease in his productivity since a portion of his

income will be attributable to the return from his savings invested in the business).

If, however, society would have had perfect foresight it would not have wasted its

resources on training a worker who would in the future not use those skills. Thus, in

hindsight, there has been a misallocation of some of society's resources; but, as

discussed above (Section II.B.l.c.), these resources are a "sunk cost" and as such should

not be counted when evaluating the costs and benefits resulting from a current







- 62 -


emigration decision. What may be an undesirable result, however, is that the loss of

human capital from this source may further discourage firms from devoting their

resources to training workers. In this sense emigration might lead to a loss in human

capital. Society could suffer an additional loss if the social rate of return to capital,

in general, is greater than the social rate of return realized from the specific

investment made by the emigrant.



23. See Piore (1979) for a discussion of how this kind of additudinal change has

adversely affected the supply of agricultural labour in Puerto Rico.



24. This loss of savings will constitute a social cost only if the social return on

investment exceeds private returns, a quite likely event. To clarify, if the individual

placed his savings in a bank which paid him, say, 5 per cent, and if that bank loaned

those funds to a firm which was able to realize a 25 per cent return on their

investment, then the social loss due to the individual consuming his savings is 20 per

cent, less the costs of transacting the loan.



25. Much of the following discussion is based on interviews during some preliminary

fieldwork on the impact of emigration on the Philippines.



26. It is interesting that the Philippines Department of Labor has attempted to

establish such a system. Unfortunately, it has been almost completely undermined by

recruiters acting as their own labour exchange. Recruiters appear to be free to

register as many workers as they wish. Given that recruiters, including the official

government recruiting office, operate almost solely in Manila, those desiring to

emigrate are virtually forced to come to Manila.







- 63 -


27. An important function of planning parameters is to provide project evaluators with

specific guidelines concerning the value to be placed on a unit of progress toward the

achievement of a development objective. For example, what is the value of a unit

reduction in income inequality, poverty or unemployment. The social rate of discount

is also a planning parameter. As well, "shadow prices" of labour, foreign exchange and

capital are usually planning parameters.



28. Insofar as the expenditure of remittances on consumption improves the physical

well being of recipients, their productivity may rise, i.e. current consumption in some

situations is tantamount to an investment in human capital. Under these circumstances

there is not necessarily a conflict between current and future consumption.



29. It is worthy of note that the International Labour Office has recently commenced

a series of case studies of emigration policies in various parts of the world. Adler

(1980) points out what is being argued here; namely, that "the question of whether

migration 'benefits' the countries and individuals involved and to what extent, is

critically dependent on how it is organised and also by whom". (p. 3).



30. cf. Hiemenz and Schatz, 1979.



31. See, for example, Bhagwati, 1964.



32. The economist would point out that in both cases the implicit assumption is that

the elasticity of output with respect to labour is less than one. If it is greater than

* one then migration may increase income inequality between the labour sending and

receiving countries. It is a distinct possibility that the importation of labour may

reduce unit costs of production for many firms, particularly those with excess







- 64 -


capacity. In this case it could be argued that the elasticity is greater than one. If

at the same time the elasticity is less than unity for the labour exporting country,

then both would be realizing short-run gains from migration (given the labour

homogeneity assumption). Who gains the most depends on the relative values of the

elasticities.



33. An important consideration is who owns the land and capital being combined with

immigrant labour. If the land and capital is owned by foreigners, and hence the

indigenous population are by and large wage earners, then immigration will be to the

economic disadvantage of the indigenous population.



34. Foreign labour as a percentage of the total labour force for each of the countries

was: Austria, 6.3; Belgium, 8.9; France, 10.9; F.R.G., 9.7; Netherlands, 5.5; Sweden,

6.2; Switzerland, 19.8; and, United Kingdom, 7.9.



35. Once again the reader is reminded that labour shortages in particular industries are

consistent with unemployment in general, which simply underscores the fact that labour

is not a homogeneous factor of production.



36. In an insightful article Dickson (1975) shows how changes in the level of

immigration can be a useful adjunct to orthodox policy instruments in ensuring that the

economy maintains its desired growth rate in the face of external stimuli.



37. An exception may be some of the labour importing Middle-Eastern countries where

the expenditure multiplier could be quite low. In fact, it could be said that their

reason for importing labour is to diversify their economic base so that the benefits of

expenditures out of oil revenue can be internalized, i.e. so that their expenditure







- 65 -


multiplier can be enlarged (Birks and Sinclair, 1980). Conceivably, until this occurs

the expenditure multiplier in some of the countries supplying labour to the Middle-East

may exceed those of the countries hosting their emigrants.



38. Technically, to calculate the internalized economic benefits from this source one

would calculate the immigrant wage bill and subtract from that the value of

remittances, then multiply the remainder by the expenditure multiplier and then

subtract from that product the immigrant wage bill (since the latter is a benefit to

the immigrants and not to the indigenous population).



39. cf. Castells, 1975; Burawoy, 1976; Wilson, 1976.



40. The economist would correctly point out that plant and equipment paid for in the

past are sunk costs which are irrelevant to current production decision-making. If

wages rise the firm will continue to use its existing plant and equipment since the

(capital) costs of doing so is virtually zero. If it can cover its current (variable)

costs it will continue to operate using its old plant and equipment. When that

equipment is worn out it will then respond to the changed relative prices of capital

and labour by purchasing new equipment which embodies the "appropriate" technology.

However, viewing the problem on an economy wide basis, many firms will be hit hard

enough by wage rises that they cannot profitably continue to operate. Those firms

have two choices- close down and cut their losses or purchase new plant and

equipment embodying "appropriate" technology and stay in business. It is in the latter

case that the argument developed here applies.


41. The studies of Apel and Baade were reviewed in Blitz.







- 66 -


42. Reported by Sans en-Koob (1978), p. 541.



43. Usher (1977) commits the error of analysis noted above. In his study, using data

from the U.K., he ignores the tax contribution of immigrants when calculating their

effect on the provision of public goods to the original population.



44. The most comprehensive discussion of the issue of economic justice as it pertains

to international migration has been advanced by BShning (1981b). Although Bbhning's is

the most detailed discussion of the issue, others have been concerned about inequities

in the distribution of the gains from international migration. In the Southern African

context the issue has been raised by Stahl (1977), Stahl and Bohning (1981) and Wilson

(1976). In the Southern Pacific context, specifically in relation to migration from

Tonga to New Zealand, the issue has been touched upon by Mc Pherson (1980).







- 67 -


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International migration and

development in the Arab region

In 1975 over two-and-a-half million Arab workers and their dependants, as well as
another half-million non-Arabs, were living in Arab countries other than their home-
land. Migration on such a scale is largely the result of economic forces, in particular
the apparently insatiable demand for labour in oil-exporting, capital-rich States
such as the Libyan Arab Jamahiriya and Saudi Arabia.
In this well researched book the authors examine the volume and patterns of
international migration for employment to, from and between the Arab States of
the Middle East and analyse the factors underlying it. In so doing they draw atten-
tion to the advantages and disadvantages of these flows both to the countries of
origin and to the countries of employment, and suggest what might be the conse-
quences of the ever greater recourse now being had by the migrant-receiving
countries to labour from the Indian subcontinent and the Far East. The book con-
cludes by setting out a number of courses that the Arab migrant-sending countries
might consider in order to improve their position vis-a-vis the capital-rich
States.
xii +175 pages 25 Swiss francs ISBN 92-2-102251-X (limp cover)
35 Swiss francs ISBN 92-2-102252-8 (hardcover)








Black migration to South Africa

A selection of policy-oriented research
Edited by W R Bohning

The results of research initiated by the ILO in 1976 into the whole question of Black
migration to South Africa are brought together in this study, which is published
with the financial support of the UN Fund for Population Activities. Taking as their
starting-point the assumption that Black migration to the Republic of South Africa
should be eliminated on both moral and political grounds, the researchers set
themselves two aims: first, to examine how the working and living conditions of
both the migrants and their dependants can be improved as long as migration con-
tinues; and second, to discover what means there are of reducing the dependence
of the migrant-sending countries on job opportunities in South Africa and, in partic-
ular, to consider how the existing migration link can be used to relieve these coun-
tries of their need to send workers to South Africa. The final chapter suggests a
possible plan for the gradual phasing-out of migration over a period of 15 years.

20 Swiss francs ISBN 92-2-102759-7 (limp cover)
30 Swiss francs ISBN 92-2-102758-9 (hard cover)








Trade in place of migration
An employment-oriented study with special reference to the Federal
Republic of Germany, Spain and Turkey
By U. Hiemenz and K. W. Schatz
An important feature of a new international economic order would be an efficient
international division of labour that would encourage a mutually profitable revival of
world trade. The present book is one of a number of case studies carried out under
ILO auspices to quantify some of the factors involved.
After examining in some detail the competitiveness of the industries of the
Federal Republic of Germany, in particular, which is one of the developed countries
already most integrated in world trade, the study estimates the effects of a liberali-
sation of the country's imports on employment in the Republic by industry, by area,
and by the skill, sex and nationality of the workforce. The possibilities of re-employ-
ment in their own countries for the Spanish and Turkish migrant workers who
might well be displaced by such a liberalisation are assessed in a concluding sec-
tion, which contrasts the economic policies recently followed in Spain and Turkey
and points to their employment implications.

x + 118 pages 17.50 Swiss francs ISBN 92-2-101865-2 (limp cover)
27.50 Swiss francs ISBN 92-2-101864-4 (hard cover)