Front Cover
 Title Page
 Table of Contents
 The Philippines
 ASEAN labour exports and economic...
 The distribution of the gains from...
 International migration for employment...
 Back Cover

Group Title: Working paper / International migration for employment ;
Title: International labour migration and the ASEAN economies
Full Citation
Permanent Link: http://ufdc.ufl.edu/UF00095185/00001
 Material Information
Title: International labour migration and the ASEAN economies
Series Title: Working paper / International migration for employment ;
Physical Description: v, 102 p. ; 30 cm.
Language: English
Creator: Stahl, Charles W
International Labour Office -- International Migration for Employment Branch
Publisher: International Labour Office
Place of Publication: Geneva
Publication Date: June 1984
Copyright Date: 1984
Subject: Foreign workers -- Southeast Asia   ( lcsh )
Emigration and immigration -- Southeast Asia   ( lcsh )
Genre: international intergovernmental publication   ( marcgt )
bibliography   ( marcgt )
non-fiction   ( marcgt )
Statement of Responsibility: by C.W. Stahl.
Bibliography: Includes bibliographical references (p. 98-102).
 Record Information
Bibliographic ID: UF00095185
Volume ID: VID00001
Source Institution: University of Florida
Holding Location: University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: oclc - 36499380

Table of Contents
    Front Cover
        Front Cover
    Title Page
        Title Page 1
        Title Page 2
    Table of Contents
        Page i
        Page ii
        Page iii
        Page iv
        Page v
        Page vi
        Page vii
        Page viii
        Page 1
        Page 2
    The Philippines
        Page 3
        Page 4
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    ASEAN labour exports and economic development
        Page 75
        Page 76
        Page 77
        Page 78
        Page 79
        Page 80
        Page 81
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        Page 86
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        Page 90
        Page 91
    The distribution of the gains from trade in labour services: Some concluding observations
        Page 92
        Page 93
        Page 94
        Page 95
        Page 96
        Page 97
        Page 98
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        Page 102
    International migration for employment working papers
        Page 103
        Page 104
    Back Cover
        Page 105
Full Text


Working Paper

International Labour Office, Geneva



Working Paper




C.W. Stahl

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

June 1984

( International Labour Organisation, 1984

ISBN 92-2- 103876- 9

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 deliminations 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.


- i -



A. FOREWORD, by W.R. Bbhning .......................................... v

C.W. Stahl ......................................................... 1

I. INTRODUCTION..............................................1

II. THE PHILLIPINES.............................................3

The Growth of Temporary Migration......................... 3

Institutional Aspects of Filipino Labour Emigration:
The Evolution of Labour Export Policy............... 7

Employment Effects of Labour Export....................11

Remittances....................................... 12

Migration and Wage Differential.........................15

Illegal Recruitment Activities..........................16

The Corporate Export Strategy........................... 17

Notes .................................................18

III. THAILAND...................................................19

The Growth of Labour Emigration........................19

Destination and Occupational Distribution of
Thai Contract Workers............................20

Some Demographic Characteristics of Emigrant Workers....22

Estimating Numbers Abroad................................25

Wage Differentials: The Stimulus to Migration..........30

Regulating Recruitment .................................33

Employment Effects of Labour Export.....................34

Migration and Skill Formation..........................35

Notes........................................... .. ..... 36

- ii -

IV. INDONESIA...................................................37

The Growth in Labour Export and Its Geographical

Industrial Grouping of Overseas Workers................39

Wages and Conditions................................. 40

Regulating Recruitment .................................42

Remittances........................................... 44

Employment Consequences of Labour Export.................45

V. MALAYSIA....................................................47

Sectoral Labour Shortages and Labour Immigration........47

Agriculture .....................................47

Construction..................................... 50


East Malaysian Immigration..............................53

Notes......................................... ........ 55

VI. SINGAPORE.................................................. 57

Immigrant Labour and the Singapore Economy:
An Overview...................................... .57

Current Immigration Policy..............................62

Income and Productivity Differentials Between
Domestic and Foreign Labour......................... 66

The Social Cost of Foreign Labour......................69

Singapore's Restructuring and Malaysia's Development....73

Notes............. ... ............... ....... .....74


Remittances. ... ...... .. ......................... .. 75

Emigration and Skill Formation.........................80

Output and Employment Consequences of Labour Export.....84

- iii -

Labour Emigration and Rural Productivity.................86

Emigration and Urbanization............................89

Notes... ..... ......................... ............90

SOME CONCLUDING OBSERVATIONS. ..................... ... 92

The Gains from Trade in Labour Services................93

Some Policy Considerations............................96

A Concluding Note........................................97

Notes ........ .......... ......... ......... ............. 97

REFERENCES......................... ...................... .......98


2.1. Numbers of Filipino Overseas Contract Workers Processed
through the Philippine Ministry of Labor and employment ....... 4

2.2. Placement of land based workers by major geographical
destination (1976-83) .......................................... 5

2.3. Middle Eastern countries of destination of land-based
workers, 1983 .................................................. 6

2.4. The occupational distribution of land-based overseas workers
processed through government agencies in 1983 ................ 6

2.5. A comparison of local and Middle East earnings by
occupational grouping, 1982 ...................................15

3.1. Number of contracts registered with labour departments,
1977-83 ...................................... ... .............. 19

3.2. Countries of destination of Thai contract workers, 1980-82 ....20

3.3. Previous (major) occupational distribution of Thai overseas
workers ............................... ..... .... ............... 21

3.4. Skill category of Thai overseas workers ......................22

3.5. Age distribution of Thai overseas workers .....................23

3.6. Number of children and dependants of overseas workers .........23

3.7. Educational attainment of Thai overseas workers ...............24

3.8. Contract worker remittances from the M.E. as recorded by
Central Bank 1979-82 ..........................................25

- iv -

3.9. Average monthly wages of overseas contract workers ............26

3.10. Remittances as a percentage of total earnings by country
of employment ...................................................27

3.11. Number of contracts registered with the labour department
and estimates of the actual number of contract workers abroad
1980-83 .......................................................29

3.12. Overseas wages, Thai wages and wage differential, by
major occupations ............................................. 31

3.13. Average expenditure for obtaining overseas employment
by occupation .................................................32

3.14. Skill formation of Thai overseas workers ......................35

4.1. Number of Indonesian overseas workers processed by the
Ministry of Manpower and Transmigration, 1975/76-1980/81 ......37

4.2. Geographical distribution of Indonesian Overseas workers
processed by the Department of Manpower, 1980/81 ..............38

4.3. Industrial groupings of overseas workers, 1981 ................39

4.4. Average monthly basic salary of Indonesian construction
workers in Saudi Arabia as prescribed by the Department of
Manpower, 1981 ................................................41

4.5. Salary ranges of workers coming under the purview of the
Coordinating Team for the Middle East, 1981 ...................42

5.1. Occupational distribution of Filipino migrants from Tawi-Tawi
to Sabah ......................................................55

6.1. Estimates of foreign workforce by source and residential
status ........................................................59

6.2. Occupational distribution of Singapore citizens and non-
residents .....................................................61

6.3. Manufacturing firms by capital structure ......................63

6.4. Manufacturing by major source of capital and value-added
per worker ....................................................64

6.5. Distribution of non-resident labour in manufacturing ..........65

6.6. Occupation and income of Singapore citizens and non-resident
employees aged 10 years and over ..............................66

6.7. Income of Singapore citizens and non-residents aged 10
years and above, by occupation and sex ........................67

6.8. Relative tax burden of citizen and non-resident groups
in Singapore ..................................................71



This is a working paper of the ILO's International Migration for Employ-

ment Branch. The objectives of the Branch are to contribute to (1) the evalua-

tion, formulation and application of international migration policies suited

to the economic and social aims of governments, employers' and workers' orga-

nisations, 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) technical advisory services, (c) technical

co-operation, (d) meetings and (e) work concerned with international labour

standards. The Branch also collects, analyses and disseminates relevant infor-

mation and acts as the information source for ILO constituents, ILO units and

other interested parties.

In this paper Dr. Stahl, firstly, provides data or estimates on the current

volume and characteristics of out-migration from and in-migration to the five

ASEAN countries (Indonesia, Malaysia, the Philippines, Thailand and Singapore

- Brunei was not a fully independent State when the research for this paper

was undertaken). This serves, secondly, as a basis for an evaluation of the

effects of migration in sending and receiving countries looked at separately

as well as in a comparative perspective. It is the first major study on inter-

national labour migration covering the countries of the Association of South-

East Asian Nations.

W.R. Bbhning

June 1984




Charles W. Stahl
(Department of Economics,
University of Newcastle, Australia)


In this brief acknowledgement I cannot hope to give due credit to the many people who

aided me in my research efforts. The few mentioned below were particularly helpful.

Ahsanul Habib deserves a special thanks for the valuable research assistance he provided.

My fieldwork in the Philippines was facilitated by the cooperation of Patricia Sto Tomas,

Administrator, Philippine Overseas Employment Administration; Virginia Teodosio and Carol

Jimenez of the Institute of Labor and Manpower Studies; and Minda Indiongco of the Bureau

of Employment Services. In Thailand Narongchai Akrasanee was most helpful in directing me

to persons familiar with Thai labour export. In particular, Jiratorn Poonyarith and Pakorn

Amornchewin of the Labour Department's Overseas Employment Service Division, Peerathip

Roongshivin of the National Economic and Social Development Board, Mrs. Chinda Chareonvejj

of the Bangkok Bank and Mr. C. Charoenpitaks of the Bank of Thailand have been both helpful

and informative. In Malaysia Mohd. Pilus Yusof was helpful in arranging appointments with

government people I needed to interview. As well, Paul Chan used his extensive contacts

outside government to aid me in my quest for information. In Indonesia Rustam Didong was

helpful in arranging appointments. Mr. Payaman and S. Suparman were most helpful in direct-

ing me toward available information. Dr. Z. Yasni of the Co-ordinating Team on the Middle

East was very co-operative. In Singapore my enquiries were greatly expedited by the co-

operation shown and the information provided by Pang Eng Fong.

- 1 -


This study is concerned with international labour migration and the
ASEAN economies. A study of international labour migration in this area of
the world provides a unique opportunity with regard to international
migration research. This is because ASEAN contains both major exporters
and importers of labour.
There are two principal objectives of this study. The first is to
establish just how international labour migration features in the the
ASEAN economies. The second is to evaluate its importance to those
economies. Due to financial constraints, and hence time and data
constraints, the latter objective has only partially been achieved. What
information the author has been able to obtain does, however, yield some
quite interesting insights into the impact of international labour
movements on the ASEAN economies.
It is generally believed that the export of labour services can give
rise to several potential benefits: It can relieve unemployment and
underemployment; it can be a source of foreign exchange; it can lead to the
acquisition of skills; and, in general, it can improve material welfare by
increasing per capital national income. The potential benefits accruing to
a country importing labour are also considerable: they can allow firms to
realize economies of scale; they can prevent wage inflation in those
industries experiencing labour shortages; they can facilitate investment by
ensuring that new capacity can be adequately manned; they permit a country
to adjust its labour supply to accord with the ebb and flow of economic
activity; and, generally, they make available labour services without the
need to finance the formation of the human capital from which those
services are derived.
The extent to which a country fully realises the potential benefits of
labour export or import depends on many considerations. In relation to
labour export, one of the aims of this study is to suggest policies which
might augment its potential benefit. The study also draws attention to the
cost of labour export and suggestions are made as to how these costs might
be reduced.
This study commences with the cases of the labour exporters. The
export of labour services features importantly in the export sectors of the

-2 -

Philippines, Thailand and Indonesia. The Philippines, which has the
longest and deepest involvement in the international labour market, is
discussed in Section II. Labour exports from the Philippines and Thailand
(Section III) are increasing at a rapid rate. Both have found a ready
market for their manpower in the Middle East, particularly in Saudi Arabia.
Indonesia (Section IV), while attempting to make inroads on the Middle East
market, finds Malaysia to be the prime overseas market for its labour
services. Of these three countries, the Philippines has the most
sophisticated institutional framework for regulating and supervising the
export of labour (see Lazo, 1982).
Section V is concerned with Malaysia which is unique amongst ASEAN
countries in that it both exports and imports labour. Some labour is
exported to the Middle East but the majority goes to Singapore. Malaysia's
administrative controls over labour emigration are so lax that there are no
official statistics on emigration. Information on emigration to Singapore
is obtained from Singapore authorities.
Singapore, the case of a labour importer, is discussed in Section VI.
It provides an interesting case study of the benefits to be obtained
through selective labour importation and the costs involved. The study
shows that, contrary to popular belief, immigrant workers impose much less
cost on public infrastructure relative to tax contributions than do
Singapore citizens.
Section VII then examines critically the hypotheses concerning the
benefits of labour exports and reviews evidence from those country studies
which sheds some light upon the hypotheses. Throughout this section,
suggestions are made as to how the potential benefits of labour export
might be increased. The paper concludes with a discussion of the
international distribution of the gains from international migration
(Section VIII). Some policies are also suggested which may help to ensure
that a fairer proportion of those gains are realized by the labour
exporting countries.


For a number of decades labour emigration has been a relatively
important feature of the Philippine economy. In the early 1900s the
Philippines proved to be a source of reliable labour for the pineapple
industry of Hawaii and Guam. By 1923 some 20,000 Filipinos were working in
Hawaii and some 5,000 had been recruited by the Alaskan fish canning
industry. It has been estimated that, by 1941, 71,000 Filipinos were in
the United States.1
The era after the second world war, particularly the 50s and 60s, saw
a change in the character and destination of Filipino labour migration.
Specifically, in the 1950s large numbers of Filipinos found employment in
other Asian countries. In North Borneo alone, some 25,000 Filipinos were
employed in the development of plantations and the timber industry. In the
latter half of the 1960s, a large number of Filipino loggers were employed
in Kalimantan. During this same period many Filipinos were also recruited
for work in Viet Nam, Thailand and Guam in support of the US war effort in
Viet Nam. This experience imparted construction skills to a great many
Filipinos, which were to be of undoubted benefit to the promotion of
Filipino labour export to the Middle East in the 1970s.

The Growth of Temporary Migration
In contrast to previous emigration, the movement of Filipino labour
within the Asian region in the 1970s was temporary emigration. By 1973,
contract workers constituted 47 percent of total emigration, whereas in
1970 that figure was 5.6 percent. Thus, the 1970s saw a massive growth in
the temporary export of labour services from the Philippines.
Table 2.1 gives information on the growth in the number of Filipino
overseas contract workers. The figures for earlier years have been
understated significantly because of much unrecorded migration. Figures
for recent years are also believed to be an understatement of actual
numbers since a significant level of illegal recruitment and placement of
workers occurs. The numbers also refer to annual placements only and hence
represent a flow. The stock of Filpino labour overseas at any point in
time is considerably greater. Unfortunately, statistics on return
migration are not available. Thus one can only estimate the stock abroad
by using available information on the average length of contracts.


Table 2.1: Numbers of Filipino Overseas Contract Workers Processed
Through the Philippine Ministry of Labor and Employment*

Year Number Annual Percentage

1970 1,859
1971 1,863 0.2
1972 14,366 671.1
1973 26,418 153.5
1974 32,764 -8.9
1975 36,035 9.9
1976 47,835 32.7
1977 70,375 47.1
1978 88,241 25.4
1979 137,337 55.6
1980 214,590 56.3
1981 266,243 24.0
1982 314,284 15.3
1983 434,207 38.2

Includes Seafarers

Source: Abella (1979), p.8 and the Philippine Overseas
Employment Administration (POEA, 1983a,1983b).

However, this basis of estimation can lead to considerable error since many
workers re-contract while abroad, while many others are illegally
recruited. Despite these difficulties the Ministry of Labor has been
willing to supply estimates. In 1969 the Ministry placed the stock at
37,000; in 1976 at 85,000; and, in 1980 at 493,000. The Ministry has not
provided a figure in the last few years. However, employing a slightly
different formula than Abella (1973, pp.55-56) for calculating the stock of
workers abroad would yield a 1983 figure of 732,000.2
Table 2.2 shows that the greatest concentration of growth in demand
has been in the Middle East. In 1976, 7,813 workers were placed in the
Middle East, accounting for approximately 41 percent of all overseas
placements of land-based workers. By 1983 Middle East placements amounted
to 323,414, accounting for 85 percent of overseas land-based workers. As
can be seen from Table 2.3, of the Middle Eastern countries Saudi Arabia is
by far the greatest user of Filipino labour. In 1983, 253,080 Filipino
workers were processed for work in Saudi Arabia, constituting over 78









4 I 4 I II










AFRICA 473 2.46 515 1.40 1,305 2.56 1,134 1.23 1,607 1.03 2,144 1.02 1,098 0.44 2,353 0.62

ASIA 5,399 28.09 5,291 14.43 9,994 19.61 12,604 13.62 16,253 10.42 20,322 9.63 31,011 12.40 40,814 10.73

EUROPE 2,902 15.10 2,482 6.77 1,269 2.49 673 0.73 840 0.54 1,119 0.53 1,465 0.59 2,878 0.76

EAST 7,813 40.65 25,721 70.13 34,407 67.50 73,210 79.13 131,977 84.59 183,590 87.04 210,972 84.35 323,414 85.05

OCEANIA 133 0.69 139 0.38 80 0.16 312 0.34 180 0.12 222 0.11 714 0.28 2,072 0.55

AMERICAS 1,385 7.21 1,214 3.31 2,493 4.89 3,395 3.67 3,628 2.33 2,241 1.06 3,707 1.48 5,645 1.48

TERR. 1,116 5.81 1,314 3.58 1,413 2.77 1,191 1.29 1,533 0.98 1,298 0.62 1,148 0.46 3,086 0.81

TOTAL 19,221 36,676 50,961 92,519 156,018 210,936 250,115 380,262

a Figures in % columns may not add to 100 because of rounding.


Table 2.3: Middle Eastern Countries of Destination
of Land Based Workers, 1983

Country Number Percentage

Saudi Arabia 253,080 78.3
Iraq 14,349 4.4
United Arab Emirates 12,831 4.0
Libyan Arab Jamahariya 11,042 3.4
Kuwait 14,781 4.6
Bahrain 6,617 2.0
Oman 2,773 0.9
Jordan 1,875 0.6
Qatar 2,863 0.9
Iran 193 0.1
Other Middle East Countries 3,010 0.9

TOTAL 323,414 100.0

Source: POEA (1983b)

percent of Middle Eastern demand and over 66 percent of world demand for
Filipino land based workers.
Over 65 per cent of all land based workers processed by the POEA in
1983 were in the category Production and Construction (Table 2.4). The
Professional and Technical and the Service occupational categories
accounted for 13.9 percent and 15.3 percent, respectively, of all processed

Table 2.4: The Occupational Distribution of Land-Based Overseas
Workers Processed Through Government Agencies in 1983

Occupational Categories Number Percentages

Professional and Technical 52,931 13.9
Managerial and Administrative 1,870 0.5
Clerical 14,189 3.7
Sales 2,259 0.6
Service 58,151 15.3
Agriculture 1,641 0.4
Production and Construction 249,221 65.6

Total 380,263 100.0%

Source : POEA (1983b)


Institutional Aspects of Filipino Labour Emigration:
The Evolution of Labour Export Policy

Government involvement in the labour export market dates back to 1915,
when, with the introduction of Act 2486, a licensing system was created for
recruitment of overseas workers.3 From time to time the Labor Department
specified minimum contract conditions as well as formulating procedures and
rules applying to overseas workers remittances.
The rapid growth of temporary contract labour emigration in the early
70s brought with it economic and social complexities of much greater
magnitude than was associated with previous labour emigration. In
particular, it presented unscrupulous labour agents with the opportunity to
collect recruitment fees for non-existent jobs. As well, it became
imperative to guarantee that the contractual arrangements agreed upon
between Filipino workers and their overseas employers were honoured. It
also became important to protect the families of emigrant workers from
becoming destitute. Hence the need for a system to ensure that remittances
were sent home.
The government response was manifest in the Labour Code of 1974. Its
aim was to provide an institutional framework for the administration and
regulation of labour recruitment. It extended the employment functions of
the Bureau of Employment Services (BES), charging it with the
responsibility of regulating private recruitment of labour; it created the
Overseas Employment Development Board (OEDB) which actively recruited
land-based workers for overseas employment; and, it established the
National Seamen's Board (NSB), to administer and regulate shipping agencies
engaging Filipino seamen. The government also pursued several additional
lines of policy. First, the Ministry of Labor and Employment mounted
public information campaigns in an attempt to reduce exploitation by
illegal recruiters. Secondly, the Ministry began prosecuting illegal
recruiters, though with very limited success. Thirdly, the BES, OEDB and
NSB, were made responsible for reviewing contracts before allowing a worker
to be hired. This process gave rise to model contracts prescribing minimum
conditions of employment. Fourthly, Philippine embassies in countries of
major Filipino employment established labour attaches to resolve
difficulties encountered by workers in relation to the terms of their


contracts. Finally, each agency was made responsible for the
administration of a welfare and training fund financed by worker
contributions. The principal use of the funds is to provide compensation
for death or disability, and provide assistance to dependants and
beneficiaries of overseas workers.
An initial thrust of government policy as embodied in the Labor Code
was to expand the operations of the OEDB with the aim of displacing the
private recruiters. The Labor Code prohibited the issuing of new private
recruiting licenses and envisaged the phasing out of private recruitment
within four years. However, private organizations argued strongly that the
rapidly expanding demand for Filipino labour from diverse sources was
beyond the capacity of the OEDB to manage. Attempts to suppress private
recruitment were also leading to a proliferation of illegal recruitment.
Under these pressures the government reversed its policy and, in 1978,
amended the Labor Code to allow for increased participation of the private
sector. In the period 1978-82 the number of licensed recruitment agencies
increased to over 1000. The growth of the private sector was so rapid that
by 1982 the Ministry of Labor was concerned about too many recruitment
firms being in operation. In that year Letter of Instruction 1190 was
issued which halted the issuing of new licenses. However, by the end of
1983 the number of authorized participants in the overseas employment
programme totalled 1,023, comprised of 579 recruitment agencies, 164
manning agencies for the placement of seamen, 49 service contractors and
231 construction contractors (POEA, 1983b).
The establishment of the Philippine Overseas Employment Administration
(POEA) has been the most recent major institutional change in the
Philippine labour export market. The reasons for its creation were
foreshadowed in an ILO working paper (Lazo, 1982): it was hoped that a
merger of the OEDB and the BES would help resolve the conflict between the
highly regulated private sector and the unregulated OEDB, the latter
organization being seen as a source of competition by the private sector;
moreover, it was felt that the differing jurisdictional perogatives of the
BES, OEDB and the NSB resulted in an unfortunate lack of planning and
For whatever reasons the POEA was established in 1982 and operated as
an integrated agency incorporating the former NSB, OEDB and BES. At the


head of the POEA is a governing board assisted by two advisory boards, one
for land-based workers and another for seamen. The members of the advisory
boards come primarily from the private sector. The Market Development and
Placement Office of the POEA is concerned with the marketing of Filipino
labour overseas. The Licensing and Regulation Office sets employment
standards and regulates the private sector recruitment of land-based
workers and seamen. The Workers Assistance and Adjudication Office
provides legal and welfare services to overseas workers and their families.
Under the umbrella of the POEA a Regional Labor Center has also been
established in Jeddah, Saudi Arabia and operates as an office for marketing
Filipino labour as well as undertaking welfare services. Attached to the
POEA is the One-Stop Processing Center for Overseas workers which attempts
to facilitate the processing of workers.
One of the most recent innovations of the POEA has been the creation
of the Labor Assistance Center (LAC) during May 1983. The LAC operates out
of Manila International Airport as a final checkpoint, ascertaining that
workers have their proper and complete documentation. More than any other
aspect of the POEA's operation, the LAC has helped break the back of the
black market in overseas employment by preventing illegal recruitment with
its associated exploitation. In fact, the massive increase in the number
of overseas workers going through official channels between 1982 and 1983,
an increase of 120,000, can be much accounted for by the introduction of
the LAC. For example, if the increase in placements between 1982 and 1983
were the same as between 1981 and 1982, (48,000), then we might have
expected a 1983 placement figure of around 362,000. Yet from Table 2.1 we
see that placements numbered over 434,000. Thus if it were not for the LAC
then it is possible that over 70,000 illegal and unprotected recruits would
have left the Philippines in 1983. That the LAC has been so effective in
curtailing illegal recruitment is indicated by the fact that the staff of
the LAC have received numerous threats on their lives and many attempts at
Other improvements in the regulation of labour export have been made
by the POEA. In December 1983 the POEA issued its new rules and
regulations with the objective of standardizing and streamlining its
operations and transactions with its clientele. According to the POEA
(1983b): "Among the significant changes introduced were decreased

- 10 -

documentary requirements for accreditation of principals, the ranking and
rating of recruitment agencies with incentives and recognition for
exemplary performance, creation of a manpower registry for the use of
recruitees, summary procedures for the adjudication of cases,
standardization of employment contracts and certification of entertainers
before employment abroad." (pp.22-23)
The evolution of labour export policy has, of course, imparted
particular institutional features to the labour export market. Under
current policy, the recruitment of construction workers to supply overseas
firms in the private sector is the domain of Filipino 'construction
companies' while 'private recruiters' and the recruitment arm of the POEA
engage all other land-based workers.
The division of the recruitment of land based workers between private
construction companies and private recruiters warrants discussion. In the
mid-1970s it became apparent that employment prospects in the Middle East
construction industry were going to expand greatly. Filipino construction
companies seemed to convince certain government officials that a drain of
construction workers from the Philippines to the Middle East could
prejudice the competitiveness of Filipino contractors anxious to secure
contracts there. The government accordingly prohibited any firm other than
a Filipino construction company from hiring Filipino construction workers,
except that the OEDB still had the authority to supply construction workers
to overseas governments. This meant that Filipinos could work in the
Middle East only as employees of a Filipino contractor.
The method of supplying construction workers is on the basis of
sub-contracting. The Filipino construction companies approach firms which
have secured construction contracts and submit bids with regard to the
supply price of different categories of labour. If they secure the
sub-contract for the supply of labour, the Filipino construction company
then hires workers and supplies them to the principal contractor. As will
be discussed in more detail below, the difference between the sub-contract
supply price and what the Filipino construction company pays the workers
they supply can be significant. It is an extremely profitable operation
which explains the considerable pressure by the construction companies for
the government to maintain their monopoly on the recruitment of
construction workers.

- 11 -

However,the companies' rather lucrative position in the labour export
market has not continued without challenge. The private recruiters have
been pressuring the Ministry of Labour to amend recruitment legislation so
as to permit them to recruit construction workers.

Employment Effects of Labour Export
One of the implicit assumptions underlying a policy of labour export
is that it will alleviate unemployment. This prospect must have appeared
as a blessing to the Philippine government, given the considerable degree
of open unemployment and underemployment in the economy. In 1981, 905,000
individuals comprising 4.9 percent of the labour force were said to be
unemployed. One may estimate that at least another 10 per cent of the
labour force was underemployed. The government is also concerned about the
capacity of the economy to absorb incipient additions to the labour force.
The Philippine population, 47.8 million in 1979, is growing at 2.5 percent
per annum. The 1981 labour force was estimated to be 18.5 million, and was
growing at approximately 3.4 per cent. Anticipated additions to the labour
force during the first half of the 1980s is 630,000 per year. In the
second half of the decade the annual incremental figure is projected to be
From 1975 to 1981 the number of overseas positions acquired by
Filipinos was over 880,000. In 1981 alone 266,243 positions were filled.
However, it is their annual change which is of particular relevance in
evaluating the impact of the overseas employment programme on domestic
unemployment. From 1976 to 1981 domestic employment rose by approximately
3.32 million. Over the same period overseas employment rose by 191,715.
Overseas employment growth was thus 5.78 per cent of domestic employment
growth. Alternatively, one out of 17 new job openings for Filipinos was
overseas. Since 1981, however, domestic employment growth is stagnating,
while the number of placements abroad has continued to grow. A
considerable portion of these placements have been net additions to
overseas employment rather than mere replacements.
Empirical evidence overwhelmingly indicates that it is those with
experience who obtain overseas jobs. The OEDB found that contract workers
with less than two years work experience constituted only 9 percent of
processed workers. Those with 2- 5 years accounted for 33 percent while

- 12 -

those with 5-10 and 7-10 years constituted 26 percent and 27 percent of
processed workers, respectively (OEDB, 1980). A survey by Stahl and Smart
(1980) also indicated that well over 90 percent of OEDB recruits were
employed prior to going overseas. If the vacancies left by emigrant
workers are filled by the unemployed then labour export has reduced
unemployment at least until the emigrants return. This may mean that
positions left vacant are filled by those with less training and
experience. (cf. de la Llana, 1981, pp. 15-16).
A country may find that some of the skills in demand overseas are
those which are scarce at home. For example, in 1983 there were 53,931
positions filled in the occupational category of Professional and
Technical. In the Managerial and Administrative category there were 1,870.
The loss of workers within these occupational categories could result in
manpower bottlenecks which could hamper economic expansion. This is not
yet happening on any extensive scale in the Philippines. The government
could take steps to remedy this impending problem through manpower planning
which incorporates the anticipated skill mix and number of workers demanded
abroad, but this won't happen overnight.
Of course, the complete picture regarding the effect of labour export
on domestic employment could be clarified only by general equilibrium
analysis. Overall economic expansion attributable to the inflow of foreign
exchange remittances may overshadow any negative industry-specific effects
of labour export.

For countries such as the Philippines experiencing a foreign exchange
constraint on economic development, workers' remittances can be of value
for economic expansion. In 1983 overseas workers' remittances were
estimated to be US$955 million. (POEA, 1983b). This amounted to over 21
percent of merchandise exports in 1983.5
Maximising remittance inflow has been a major objective of the
government's overseas employment programme. The pre-POEA agencies involved
in export of labour services, viz., the BES, OEDB and NSB, had their own
remittance monitoring procedures. Workers processed through the BES were
required to sign an affidavit committing them to remit a specified
percentage of their salary to an account of the Philippine resident

- 13 -

nominated on the affadavit. The amount specified for construction workers
was 70 percent, while 30 per cent was specified for other occupations. The
affidavits, along with the worker's employment contract, were forwarded to
the Labour Market Information Division of the BES where an estimate of
total workers' remittances were made based on standard wages. There was no
way in which the estimates could be verified.
The OEDB employed the same procedure with one additional step.
Workers were to be asked to submit their bankbooks upon return from which
the OEDB could determine the actual amount remitted. However, discussions
the author had with officials of the OEDB indicated that the latter step
had never been enforced.
The former NSB's system of monitoring remittances is somewhat
different than those of the BES and OEDB. Each shipping agency employing a
Filipino seaman who is required to send copies of the affidavit of
undertaking and employment contract to the NSB. The shipping agency who is
required to submit monthly a copy of their payroll records to the NSB and
the Central Bank. These monthly payroll records are accompanied by
corresponding credit advices from the Philippine banks nominated by the
seaman to receive his remittances. Failure to submit these two pieces of
information will disqualify a shipping agency from operating from three to
six months. Thus the remittances reported by the NSB are actual
remittances based on credit advices of banks, not simple estimates based on
total numbers abroad times standard wages.
In July 1980 it was formally agreed that the Central Bank should
become the central authority responsible for monitoring remittances. More
recently, however, a report has been issued which is highly critical of the
proposed centralized monitoring system (see Gamboa, 1981). For a variety
of administrative and technical reasons, the report envisages such a system
as being so plagued with problems as to be of limited usefulness. It
proposed that each of the agencies continue to monitor their own
remittances. To improve upon the currently unreliable BES and OEDB
procedures, it recommends that each should employ a manual, but
computer-aided system, and argues that workers' remittances should be
deducted by employers and remitted directly to the processing agency who
would then pass it on to the workers' nominated beneficiaries. This
recommended administrative change would significantly reduce the proportion

- 14 -

of foreign wage earnings converted on the 'black market'. More recently
the responsibility for monitoring remittances has come to rest with the
POEA. With Executive Order 857 of December 1982 an attempt has been made
to enforce the legal commitment of overseas workers to remit the legally
specified portion of their base salary. Currently that portion is 70
percent for professional/technical workers and 50 percent for all other
occupations. Enforcement takes the form of the POEA requiring workers to
show proof of remittances before the worker's passport will be renewed.
Recruitment agencies failing to comply with the requirements of the order
may have their license or authority revoked.
It is often argued that a major benefit of labour service export is
the acquisition of foreign exchange. Indeed, to the country facing balance
of payments difficulties the inflow of remittances would be a welcome
short-run relief. However, their longer run benefit depends on whether the
foreign exchange is used to finance consumer goods imports or is channelled
into real capital formation. The government's ability to effect the
direction of expenditure of foreign exchange depends on the foreign
exchange regime to which it adheres. In the Philippines the ultimate
control over foreign exchange resides with the Central Bank. Through
exchange control the Central Bank gives priority to the importers of
producers goods. However, it is interesting that while the government
controls the expenditure of foreign exchange by end use of imports, it also
pursues an essentially flexible exchange rate policy. Despite this a black
market in foreign currency exists. The source of the black market is
excess demand for foreign currency for consumer goods imports or for
deposits in overseas bank accounts, directly traceable to the restrictions
imposed by the Central Bank on the allocation of foreign exchange for
consumer goods imports. For 1983 the Central Bank reported that foreign
exchange earned from oversea workers remittances was US$955 million.
However, given average earnings of overseas workers and the mean proportion
of their income reportedly sent home, actual remittance during 1983 should
have been in excess of US$1.5 billion. It appears that the excess is
going through unofficial channels and is being converted principally
through the black market. Even though the black market rate is only
slightly greater than the official rate, roughly 4-8 per cent in early
1983, it represents a considerable difference if applied to, say, US$4000,

- 15 -

a typical annual savings figure for a construction worker in Saudi Arabia.

Migration and Wage Differential
Wage differentials appear to have been an important factor in
attracting Filipino workers overseas. Evidence shown in Table 2.5
indicates a substantial difference between earnings obtainable in the
Middle East relative to those in the Philippines. However, these wage
differentials are an understatement of actual differentials since a large
proportion of overseas workers, particularly in the Middle East, have their
accommodation provided and are either provided with food or given a food
allowance. For example, at the beginning of the 80s Philippine
construction companies charged contractors in Saudi Arabia approximately
US$8 per man day for food, US$5 per man day for lodging and 30c per man day
for medical services. In a poor country such as the Philippines, food and
accommodation expenses could easily exhaust 80 percent of a worker's

Table 2.5: A Comparison of Local and Middle East
Earnings By Occupational Grouping, 1982

Occupational Grouping Middle East Philippines Ratio

and Related Workers 694 102 6.78

and Managerial Workers 632 164 3.86

Clerical Workers 556 81 6.86

Transport 516 98 5.27

Service Workers 363 74 4.93

Production and
Construction Workers 548 9 6.00

Source: Smart and Teodosio (1983, p.44).

- 16 -

Illegal Recruitment Activities
The considerable wage differentials between overseas employment and
domestic employment has led to excess demand for overseas employment
opportunities. Under competitive market conditions this excess demand
would lead to reduced wages. However, if overseas wages are inflexible
downward it will give rise to alternative forms of allocation of overseas
jobs. In the Philippines, excess demand for overseas jobs has resulted in
the latter. In particular, a great many recruiters charge considerably
more than the prescribed P500 (US$66) processing fee, thus providing the
licensed recruiter with an opportunity to reap rent. These extra charges
are illegal and under-the-counter and can assume a significant proportion
of a worker's overseas wage. For example, the average monthly wage of a
Filipino 'ordinary seaman' is approximately US$300 per month. The standard
under-the-counter fee charged by shipping agencies responsible for placing
seamen, approximately US$400. Smart and Teodosio (1983) found that, on
average, the cost of securing a position in the Middle East was US$200.
However, Go, et al., (1983), report that the cost to Filipinos of securing
a Middle East job was US$914, on average.
The existence of large profits in the recruitment business has
resulted in an extensive black market in labour recruitment which has
become of particular concern to the government. Rampant illegal
recruitment in the early 1970s was one of the reasons for Ministry of
Labor's creation of the NSB and the OEDB. However, illegal recruitment
still continues. In 1983 the Ministry of Labor resolved 804 cases
involving illegal recruitment with a result that 44 agencies were suspended
or had their license or authority cancelled (POEA, 1983b). In an attempt
to further reduce exploitation through illegal recruitment the POEA has
conducted anti-illegal recruitment seminars in various regions of the
country, in addition to establishing the Labor Assistance Center. However,
it would be fair to say that illegal recruitment is still rife and seems to
reflect on the attitudes of recruiters and some of their regulators, as
well as recruitees, that the alternative job allocation mechanisms which
have evolved, although illegal, are acceptable.

- 17 -

The Corporate Export Strategy
Because of the problems surrounding the export of labour services,
labour export policy has experienced both major shifts and marginal
adjustments in the past decade. Recently, another major policy change has
been under consideration. This new policy has been described as the
'corporate export strategy'. Its purpose is to concentrate recruitment in
the hands of an unspecified number of large efficient recruiters thus
reducing the number of legal recruiters. The ostensible motives behind the
contemplated policy shift are several. First, the firms would be, as the
construction companies are now, the employers of the workers in the sense
that the salaries of the workers would be paid by the recruiting firms
rather than the overseas firm to which the labour is destined. This would
make it easier for the government to monitor foreign exchange earned
through the export of labour services. Secondly, because of their size and
hence financial base the large labour exporting firms Rould be in a better
position to protect the interests of their workers while abroad and the
welfare of their families left behind. It is envisaged that the firms
would be responsible for ensuring that the required percentage of the
overseas workers' salary is paid to the persons) nominated by the worker.
At present, without the ability to monitor individual worker's remittances,
nominated recipients have no guarantee that they will receive remittances.
Thirdly, with only a small number of recruitment firms it is argued that
the scope for cooperation amongst them is enhanced. Competition amongst
suppliers in the labour export market can be greatly reduced. As a
consequence it would become difficult for overseas labour importers to play
one firm off against the other as is now the case. Assuming that labour
importers do not turn to sources of labour outside the Philippines, such
cooperation would ensure that a greater proportion of the gains from trade
in labour services are retained within the Philippines.
From the workers' perspective the corporate export strategy will be
seen in a negative light. Because the worker would be employed by a
Filipino firm, rather than the overseas prime contractor, he will expect a
considerably smaller wage. At present, construction workers recruited by
Filipino 'construction companies' receive considerably lower wages than
those received by workers of the same skills supplied by the OEDB but paid
by their foreign government employers. If the new POEA decides to pursue

- 18 -

the 'corporate export strategy' it will have to decide whether it is going
to allow the corporations to reap the monopoly profits which their market
position will allow them to obtain or whether it is going to monitor wage
levels carefully to ensure a fair distribution of the gains from trade in
labour services between workers and recruiting agents.


1. This historical information regarding pre-Martial Law Filipino labour
emigration is derived from materials provided to the author by the
Institute of Labor and Manpower Studies of the Ministry of Labor and
Employment. See also Lazo (1982) and Sto. Tomas (1983).

2. The formula is 1983 + 2/3(1982) + 1/3(1981).

3. A brief history of government regulation of labour export can be found
in Sto. Tomas (1983).

4. It was by Presidential Directive 852 that construction companies
became the only firms eligible to recruit construction workers
to supply private overseas firms. The OEDB, and now the POEA,
can also supply construction workers, but only on a government
to government basis.

5. Merchandise exports for 1983 were estimated by averaging the first two
quarters of 1983 and using that figure as an estimate for the third
and fourth quarters of 1983.

6. However, most authorised agents of the Central Bank offer two rates of
exchange. If one wants the higher rate then they will not be issued a
receipt for the exchange transaction. This source of foreign exchange
loss to the Central Bank is in addition to losses in the informal
black market.

7. Average monthly earnings and average monthly remittances were
estimated by ILMS (ILMS, 1983, Vol. 2, p.107,118). The author
estimates the stock of workers who sent remittances during all of 1983
to be 513,190 (= 1/2 of 1983 placements, 2/3 of 1982 and 1/3 of 1981).

- 19 -


The Growth of Labour Emigration
Contract labour emigration to the Middle East has been a relatively
recent labour market development in Thailand. The large wage differentials
between Thailand and the Middle East have ensured that large numbers of
Thai workers are willing to take up contracts.
Evidence of a rapid increase in the export of labour services can be
gleaned from official Labour Department figures. Official figures indicate
a substantial growth in labour recruitment (Table 3.1). In 1982, 108,519
overseas workers'contracts workers were registered with the Labour
Department. In 1983 the number of contracts registered fell to 67,311.
However, the number of registered contracts does not relate closely to the
numbers actually abroad due to a significant amount of illegal recruitment.
The Labour Department estimated that in 1983 there were 256,000 workers
abroad (Labour Department, unpublished data).

Table 3.1: Number of Contracts Registered with Labour Department,

Year Number
1977 3,870
1978 15,550
1979 9,129
1980 21,049
1981 24,739
1982 108,519
1983 67,311

Source : Labour Department, unpublished data.

It is generally accepted amongst those familiar with the operation of
the Thai labour export market that the Labour Department's records of
contract labour emigration significantly understate the actual level of
emigration. Estimates of actual emigration vary widely. On the basis of
information detailed below, the author has estimated that for 1983 the

- 20 -

number of Thai workers in the abroad would range between 165,000 and

Destination and Occupational Distribution
of Thai Contract Workers
At the beginning of the 1980s over 99 per cent of contract workers
coming under the auspices of the Labour Department were bound for the
Middle East (Table 3.2). Of the Middle Eastern countries,

Table 3.2: Countries of Destination of Thai Contract Workers

Country 1980 1983
Number Percentage Number Percentage

Saudi Arabia 9,948 47.64 51,841 77.02
Libyan Arab
Jamahariya 6,497 31.11 51,841 77.02
Iraq 959 4.59 1,472 2.19
Qatar 1,017 4.87 1,020 1.52
Kuwait 958 4.59 2,573 3.82
U.A.E. 757 3.63 161 0.24
Bahrain 306 1.47 198 0.29
Jordan 33 0.16 1,833 2.72
Yemen 215 1.03 -
Algeria 228 0.34
Oman 109 0.16

Middle East
Total 20,690 99.09 64,527 95.86

Singapore 191 0.91 1,378 2.05
Brunei 240 0.36
Malaysia 970 1.44
Macao 7 0.01
Indonesia 17 0.03
Ethiopia 35 0.05
Japan 137 0.02

Grand Total 20,881 100.0 67,311 100.0

Source : Department of Labour, unpublished data.

- 21

Saudi Arabia is by far the most significant source of demand for Thai
overseas workers, accounting for over 77 percent of the total during 1983.
As Table 3.2 indicates, increasing Saudi Arabian demand accounted for most
of the growth in overseas employment of Thais between 1980 and 1983.
Outside the Middle East, Singapore is the major country of destination.
The figure in Table 3.2 understates the actual number of Thais in Singapore
which, as shown in Section VI, is more likely to be between 4,000 and
5,000. Thais working illegally in Malaysia could easily exceed 10,000 (see
Section V below).

Table 3.3: Previous (Major) Occupational Distribution
of Thai Overseas Workers(a)

Occupation Number
Unemployed 118
Surveyor 5
Cook 8
Specialized Foreman 11
Panel Beater 7
Light Eqpmnt.Mechanic 19
Electrician 14
Pipe Fitter 6
Plumber 11
Welder (Electric) 11
Painter 9
Mason 49
Iron Worker 17
Light Vehicle Driver 32
Labourer 34
Carpenter 21
All others 128


Total : 500 100.0

(a) Major previous occupational distribution means those occupations
recording five or more emigrants. Although the number of
occupations used in coding the data was 114, 79 workers were
classified as being in occupations other than these 114. Thus
there could well be several more 'major' occupational groups
which have been concealed within the 'all others' category.

Source : Sample of overseas worker registration forms lodged with the
Labour Department.

- 22 -

A sample of 500 overseas workers reported in Table 3.3 shows that some
23.6 per cent of Thai workers were previously unemployed. Some 50 per cent
possessed skills which enabled them to obtain jobs in the construction
sector of the Middle East. The survey also indicated that skilled workers
were most in demand. Table 3.4 shows they accounted for 64 per cent of the
workers surveyed, while unskilled and semi-skilled workers accounted for
17.4 per cent and 11.4 per cent, respectively.

Table 3.4: Skill Category of Thai Overseas Workers

Skill Level Number Percentage

Unskilled (a) 87 17.4
Semi-Skilled (b) 57 11.4
Skilled (c) 320 64.0
Unknown 36 7.2

Total: 500 100.0

(a) Occupations included: Houseboy, Officeboy, Office Janitor,
House Janitor, Laundryman, Labourer, etc.

(b) Occupations included: Cashier, Storekeeper, Warehouse clerk,
Cook, Dumptruck Driver, Light Vehicle Driver, etc.

(c) Occupations included: Surveyor, Draftsman, Soil Lab.
Technician, Lab. Technician, Spare Parts Specialist,
Equipment Specialist, Nurse, Manager, Foreman, Panel Beater,
Fitter, Mechanic, Oiler, Airconditioning Equipment Mechanic,
Electrician, Auto Electrician, Electrical Fitter, Interior
electrician, Pipe Fitter, Plumber, Welder, Painter, Mason,
Iron Worker, Insulator, Pump Operator, Crane Tower Operator,
Backhoe Operator, Dozer Operator, Grader Operator, Roller
Operator, Crane Operator, Scraper Operator, Heavy Vehicle
Driver, Carpenter, etc.

Source: Sample of overseas worker registration forms lodged with
Labour Department.

Some Demographic Characteristics of Emigrant Workers
From Table 3.5 it can be seen that emigrant workers are generally in
the prime of their working life when taking up overseas employment. The
average age of those workers surveyed was slightly over 31 years. The
standard deviation was just under 7 years, while their ages ranged from a

- 23 -

Table 3.5: Age Distribution

Age Group

or less
to 25
to 30
to 35
to 40
to 45
to 50
and over


of Thai Overseas Workers

Number Percentage of Total




Source : Sample of overseas workers' registration
forms lodged with Labour Department.

Table 3.6: Number of Children and Dependants of
Overseas Workers

Number of
per worker


Number of
per worker




Averages : Children per worker = 1.560
Dependants per worker = 2.502

Source : Sampling of overseas worker registration forms
lodged with Department of Labour.

low of 19 years to a high of 54 years. Those in the age group 26 to 30
proved to be the largest proportion of workers, accounting for 28 per cent.
Of the 500 workers surveyed, 498 indicated their marital status. Of these
164 were single while 334.were married.



- 24 -

Table 3.6 provides information pertaining to the number of children
and other dependants of overseas workers. Those with no dependants
accounted for 29.2 per cent of the total.
These figures do have social significance. Although no systematic
survey of returned workers has yet been undertaken, there is sufficient
anecdotal evidence to suggest that family dissolution is a frequent outcome
of overseas migration. This is an area begging for close study, for it is
possible that governmental and community efforts may ameliorate this
unfortunate by-product of international migration. Marriage breakdown and
family dissolution must be included on the cost side of any ledger of the
benefits and costs of a policy of labour export.

Table 3.7: Educational Attainment of Thai Overseas Workers

Level of attainment Number Percentage

Attended Elementary School 340 68.0
Elementary School Graduate 65 13.0
Vocational Training 42 8.4
Attended High School 1 0.2
High School Graduate 21 4.2
Attended College 21 4.2
College Graduate 10 2.0

Total 500 100.0

Source : Sample of overseas worker registration forms lodged
with Labour Department.

Table 3.7 summarizes information pertaining to the educational
attainment of emigrant workers. A significant proportion of workers,
some 68 per cent, had not completed primary school. Those with formal
vocational training accounted for 8.4 per cent of those surveyed, while the
proportion with some college units or college graduates was a mere 6.2 per

- 25 -

Estimating Numbers Abroad
As mentioned above, the number of contracts recorded by the Labour
Department is only a fraction of the actual number of contract workers
going abroad. The great majority of workers are recruited by a large
number of unregistered firms, indicating that recruitment of workers is
highly decentralized. It was generally believed among officials of the
Labour Department that only 20 to 30 per cent of emigrant workers coming
under the purview of the Labour Department, were recruited by registered
recruitment firms. The same would appear to apply to the number of
recruitment firms. Over 600 recruiting firms were said to be operating in
Thailand, while the Labour Department has registered just over 120 firms.
The significance of illegal recruitment makes it difficult to obtain a
reliable direct estimate of the number of Thais working abroad. Moreover,
the labour importing countries of the Middle East do not seem to know the
precise number of Thai workers in their countries. Indirect estimates rely
on the piecing together of information from a number of sources. Some of
the more reliable information which can be helpful in this regard is
figures on remittances from the Middle East provided by the Bangkok Bank
and Bank of Thailand. As can be seen from Table 3.8 remittances from
overseas workers have grown substantially in the last few years. In 1982
the Bangkok Bank recorded US$446 million of remittances from workers in the
Middle East. The following year remittances from the Middle East totalled
US$676 million.

Table 3.8: Contract Worker Remittances from the Middle East as
Recorded by Central Bank 1979-82
(Millions of U.S. Dollars)

Year Remittances

1979 81.53
1980 239.50
1981 480.11
1982 446.06
1983 675.99

Source : Unpublished data from Bangkok Bank and
Bank of Thailand.

- 26 -

Remittances from all foreign countries in 1983 were US$840 million
which amounts to over 13 percent of merchandise exports, making overseas
workers remittances the number two foreign exchange earner, being only
slightly behind rice.
Several other pieces of information are necessary in order to use
remittance figures to arrive at an estimate of the number of workers
abroad. First, it is essential to have a reasonably accurate estimate of

average monthly earnings.

Secondly, it is necessary to know what

proportion of their incomes overseas workers remit over their one year
contract period.

Table 3.9: Average Monthly Wages of Overseas-Contract Workers
(In U.S. Dollars)


Soil Lab. Technician
Laboratory Technician
Warehouse Clerk
Spare Parts Specialist
Equipment Specialist
Office Janitor
House Janitor
Foreman (Specialized)
Panel Beater
Light Equipment Mechanic
Heavy Equipment Mechanic
Airconditioning Eq. Mech.
Auto Electrician




Electrical Fitter
Interior Electrician
Pipe Fitter
Welder (Electric)
Welder (Gas)
Iron Worker
Pump Operator
Crane Tower Operator
Backhoe Operator
Dozer Operator
Grader Operator
Roller Operator
Crane Operator
Scraper Operator
Dumptruck Driver
Heavy Vehicle Driver
Light Vehicle Driver


Weighted Average :


Source : Sample of overseas worker registration forms
lodged with Labour Department.


- 27

Information regarding average monthly wage rates is contained in Table
3.9. The weighted average monthly wage rate for all occupations regardless
of destination was US$424.21. The average wage of workers destined for the
Middle East was US$426.84. This is somewhat more than the average wage of
US$390 per month for Filipino construction workers in the Middle East.
When adjustments are made to account for overtime the average earnings of
Thais in the Middle East increases to US$587 per month.1 If the bonus of
one month's salary received at the end of contract is added, the average
monthly earnings over the one year contract period would be US$622.
The next piece of information necessary for estimating the number of
workers abroad is the proportion of earnings which Middle East workers
remit through official banking channels. Some of the migrant's earnings
are also brought back in the form of cash. From Table 3.10 we can see that
on average 61.77 per cent of total receipts were remitted through official
banking channels or brought back in the form of cash. Given that the
average worker receives approximately from US$7464 over an one year

Table 3.10: Remittances as a Percentage of Total Earnings
by Country of Employment(a)

Country Percentage

Saudi Arabia 60.57
Libyan Arab Jamahariya 67.48
Kuwait 93.02
Iraq 64.77
Bahrain 61.49
Iran 61.26
Others 60.88

Weighted Average(b) 61.77

(a) Over the period 1975-80.
(b) Weighted by the proportion of the total number
of workers in each country.

Source : Unpublished information from a survey of
returned overseas workers by the NESDB,
November-December, 1981.

- 28 -

contract period, then remittances out of this would, on average, equal
US$4611. However, this figure includes money brought back with the worker
upon the completion of his contract, which further complicates matters.
There seems to be a consensus of opinion amongst those familiar with the
financial behaviour of migrant workers that they bring home in cash or kind
both their end of contract bonus and their last couple of months' salary.
For our purposes the crucial question is how much do they bring back in
cash and how much in kind. One can only speculate as to the relative
proportions. It would seem that returnees would be loath to carry large
amounts of cash on their person, particularly since many must find their
own way back to their villages after returning to Bangkok. Moreover, the
difference between the black market and the official rate of exchange is so
small that it would not provide an incentive to return with cash. For the
purposes of arriving at a range of estimates of the numbers abroad, let us
then say that the typical worker brings back in cash the equivalent of
US$500. This would then imply that the typical worker remits through
official banking channels approximately US$4,111 per year.
Let us take another route in our attempt to arrive at a figure for
average remittances through official banking channels for the typical
migrant. Filipino construction workers are required to remit 70 per cent
of their basic monthly wage. Officials believe this to be an easily
achievable level of remittance because workers are provided with food,
lodging and transportation. In fact, most Filipino construction workers
remit well in excess of the 70 per cent of basic wage requirement, usually
because of overtime earnings. Let us assume that Thai workers remit 70 per
cent of their basic wage and overtime earnings for the first ten months of
their contract. Let us further assume that their last two months of salary
plus their end of contract bonus is used for the purchase of goods and to
bring back US$500, as suggested above. This would imply that, on average,
a worker would remit through official banking channels 70 per cent of
US$5,870, or US$4,109, during the period of his contract. This is almost
identical to the figure arrived at above for remittances through official
banking channels.
These estimates of average remitances per worker are higher than those
made 'off the top of the head' by an official of the Bangkok Bank, who
claims that monthly remittances per worker range from US$200 to US$400 per

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month, with the average being roughly US$300 per month. Based on the
assumption that each worker retains his last two months' salary plus his
end of contract bonus, the average amount per worker sent through official
channels would be US$3,000 per year. In the author's opinion this
estimate is probably on the conservative side.
We are now in a position to provide a range of estimates of the stock
of workers overseas based on remittance figures for 1980-82. (Table 3.11).
The estimates are derived by dividing estimate of total remittances

Table 3.11: Number of Contracts Registered with the Labour
Department and Estimates of the Actual Number of
Contract Workers Abroad, 1980-1983

Year Labour Dept Estimate of Stock of Workers abroad
Annual Placements
Low High

1980 21,049 58,287 79,833
1981 24,739 116,844 160,037
1982 108,519 135,025 149,663
1983 67,311 164,514 225,330

Source : Labour Department estimates from unpublished Labour
Department information.

through official banking channels by the lower and upper estimates of the
average amount of remittances sent through those channels by a contract
worker over a one year contract period. For example, in 1983 remittances
from the Middle East were estimated to be US$675.99 million. Dividing this
figure by the Bangkok Bank's official's estimate of average remittances per
worker over a one year contract period, we arrive at what would have to be
considered the upper range of the estimate of the stock of workers in the
Middle East in 1981. That figure is 225,330. If, however, we were to
assume, as was estimated above, that overseas workers on average remit
US$4109 over the one year contract period, then the number of workers in
the Middle East during 1981 would have been 164,514.
In the preceding discussion remittances through official banking
channels were estimated. These remittances are only a portion of the total

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earnings of Thai workers abroad. Thus they are considerably less than the
total earnings that end up in Thailand. We have estimated that the average
of Thai earnings plus overtime in the Middle East was US$587 per month. If
we were to assume that workers consume 30 percent of their monthly earnings
(and this figure must be considered high since workers are provided with
food and lodging as well as having their transportation paid) then over the
one-year contract period earnings destined for Thailand in either cash or
kind would be US$4,931 per worker. If the one month's salary bonus is
added, the total figure would be US$5,358. Using our lower and upper range
estimates of numbers of Thais in the Middle East, it appears that in
1982/83 Thai workers in the Middle East sent and brought back to Thailand
between US$873.2 million and US$1,196 million in cash and goods. This
amounts to between 14 percent and 19 percent of merchandise exports over
the period July 1982 through June 1983, making remittances in cash and kind
the number one export industry of Thailand.

Wage Differentials: The Stimulus to Migration
The manifest willingness of Thai workers to take up employment in the
Middle East must largely be attributed to the substantial wage
differentials which exist between that region and Thailand. Table 3.12
shows that, on average, Thai workers destined for abroad who were
previously employed received an average monthly wage of US$136.24. The
average wage abroad was US$428.75. The overall wage differential between
overseas and Thailand for those previously employed was 3.15. This figure
greatly understates the true earnings differential for several reasons.
First, the great majority of overseas workers receive free food and
accommodation. Secondly, the overseas worker will receive, on average, an
additional 37.5% of his basic monthly income as overtime payments and end
of contract bonus. Ignoring the value of food and accommodation, but
including typical overtime and bonus payments, the average wage
differential would be 4.6 (= US$7,503/US$1,635).
As one would expect, these large wage differentials have led to excess
demand for available jobs. The consequence of this excess demand is much
the same as it is in the Philippines. It provides unscrupulous recruiters
with the opportunity to collect large sums of money for the mere verbal
promise of a job in the Middle East. Even if a potential worker is

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Table 3.12: Overseas Wages, Thai Wages, and Wage
Differential by Major Occupations(a)
(US$ per month)

Occupation Overseas Wage(b) Thai Wage Differential

Surveyor 604.60 180.60 3.35
Cook 383.64 145.88 2.63
Foreman 679.54 279.36 2.43
Light equipment mechanic 531.15 146.00 3.64
Electrician 446.90 136.92 3.26
Plumber 402.32 138.91 2.90
Electric Welder 502.87 138.60 3.63
Painter 376.61 130.11 2.89
Mason 359.24 130.56 2.75
Carpenter 367.77 120.14 3.06
Iron Worker 357.00 154.81 2.31
Light Vehicle Driver 391.26 128.91 3.04
Labourer 244.76 88.77 2.76
Others 547.13 135.91 4.03

Weighted average 428.75 136.24 3.15

(a) 'Major' refers to those occupational categories both overseas and
in Thailand in which at least five workers
were listed.

(b) The weighted average wage differs from that in Table 3.9 because
only those occupations containing at least five workers for both
Thailand and overseas were used. Thus the sample size underlying
Table 3.12 differs from that underlying Table 3.9.

Source : Sampling of overseas worker registration forms lodged
with Department of Labour.

recruited by a legitimate recruiter, either registered or unregistered, he
can still count on having to pay charges far in excess of the legal amount.
The legal amount is 25 per cent of the worker's first month's salary.
Given that the average wage paid to Thai workers in the Middle East is
US$428.75 per month, the legal recruitment fee, on average, should be
US$107.19. In fact, as can be seen from Table 3.13, actual charges range
between US$585 and US$1,126. In 1980 the average recruitment fee charged
was US$780. Additional expenses incurred in acquiring a job took the total
to an average of US$974.

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Table 3.13: Average Expenditure for Obtaining
Overseas Employment by Occupation(a)
(in U.S. dollars)

Occupation Expenses As % of annual salary

Carpenter 1000 24.15
Mason 973 22.84
Iron Worker 921 20.30
Mechanic 779 11.85
Welder 766 15.31
Electrician 864 15.75
Painter 1077 21.22
Driver 1104 22.49
Cook 697 20.24
Foreman 585 9.01
Labour 1126 38.61
Janitor 989 40.60
Others 872 18.54

All occupations 974 22.61

(a) Over the period 1975-80.

Source : Unpublished data from field survey of overseas
workers undertaken by the NESDB, November-December,

In a more recent study, Singhanetra-Renard (1983) found that Thai
villagers from Lan Tong in northern Thailand incurred expenses of between
US$1800 and $2100 to secure a position in the Middle East, including a
commission to the recruiting agent ranging from US$870 to $1304. It was
found that to raise such relatively large sums the potential migrant must
piece together money from a variety of sources, but principally from loans
from other villagers (52.5 percent). Forty percent of potential migrants
mortgaged their land and/or sold some of their assets to acquire sufficient
funds. Incurring such large debts at high rates of interest, (5-7 percent
per month), means that initial remittances go almost wholly to paying off
debts. Generally, it takes overseas workers between 6 and 10 months to pay
off their debt (Singhanetra-Renard, 1983). Thus re-contracting becomes
crucially important to making overseas employment a profitable experience.

- 33 -

Despite the considerable expenses incurred in securing a job in the
Middle East, the net potential earnings of the overseas worker are still
very much larger than what can be earned in Thailand.

Regulating Recruitment
It was mentioned above that recruitment of overseas workers in
Thailand is highly decentralized. It involves an estimated 600 plus firms,
the great majority of which are not registered with the Labour Department.
These facts should not be interpreted as meaning that there is a dearth of
legislation regulating the operation of the labour export market. The fact
is that there are long standing laws which apply to labour recruitment,
either for domestic or overseas employment. The Employment and Job-Seeker
Protection Act, B.E. 2511, which finds its roots in 1932 legislation, has
been in force since 1968. The act empowers the Director General of the
Department of Labour and the Provincial Governors to license private
employment agents within their respective jurisdictions. Those licensed
are allowed to render employment services to job-seekers for a service
charge of 25 per cent of the worker's first month's salary. Those licence
holders intending to recruit labour for overseas work come under the
purview of the Overseas Employment Service Division, Department of Labour.
The Ministry of Interior has established guidelines and regulations
regarding the sending of workers abroad. Licence holders must submit their
clients' employment contracts to the Department of Labour (of the Ministry
of Interior) for scrutiny. Once approved, agents with contracts are free
to recruit workers for their client. Once the prospective workers are
selected the recruiter then arranges for each worker to be issued with a
passport and visa. As well, the recruiting agent must bring selected
workers to the Labour Department for final explanations of the conditions
of the contract and some for orientation sessions aimed at informing the
workers of what to expect in their country of destination.
There are a specified set of rules to which registered recruitment
agents must adhere. Failure to abide by these rules can result in
cancellation of the agent's license. Two rules which firms almost
invariably break relate to recruitment charges. The Act specifies that an

- 34 -

agent's commission shall not exceed 25 per cent of the worker's first
month's salary and the agent shall not collect his commission before the
worker commences his employment.
With regard to the export of labour services, the Employment and
Job-Seekers Protection Act has several shortcomings. First, unlike
registered recruitment agencies in the Philippines, Thai recruitment agents
are not required to establish an assurity bond to guarantee the
repatriation of workers in the advent of contract violations. Such cases
become the burden of the Thai embassies in the country concerned.
Secondly, the Act stipulates that an agent engaged in the illegal export of
workers will be subject to a fine of 1,000 Baht or approximately US$44, a
relatively insignificant amount when compared with recruitment fees that
can be in excess of US$1,000 (Table 3.13). Thirdly, the Act has no
provisions concerning the operation of sub-contractors. More specifically,
an agent or company can obtain a sub-contract in the Middle East, usually
exclusively for the supply of labour, and then return to Thailand and hire
workers directly. Thus the agent or company is not operating as an
employment broker, but rather as an employer. The government is aware of
these shortcomings of the Act and has been considering various alterations
and extensions to its provisions.

Employment Effects of Labour Export
It appears that the opening up of overseas employment opportunities
has contributed significantly to employment growth and the alleviation of
unemployment in Thailand. Between 1980 and June 1983 employment growth in
the Thai economy would have been approximately 1.3 million.2 Using the
average of the lower and upper range estimates of the number of Thais
abroad over this period, the growth of overseas employment opportunities in
the Middle East would have amounted to just over 124,000. As a
consequence, overseas employment growth has accounted for approximately 9.5
per cent of total employment growth over this period. In 1982/83 the stock
of overseas workers in the Middle East amounted to over 13 percent of
Thailand's unemployment during that period.
However, the export of labour services can create skill bottlenecks.
If exported workers are in short supply and are complementary to domestic
workers, it could reduce domestic output and employment. An official of

- 35 -

the Bangkok Bank expressed some concern that in the near future there
would, given current levels of training, be 'drastic shortages of certain
skills'. Indeed financial aid was granted by the Bank to various job
training centres. As in the Philippines it would be wise for Thai
policy-makers to monitor carefully the skill composition of labour export
as they may need to devote additional resources to manpower training.

Migration and Skill Formation

It is commonly suggested that temporary labour emigration leads to
skill acquisition, enhancing developmental prospects with the return of
workers. Evidence gleaned from Thai data indicates that, on balance,
labour export makes a positive contribution to skill formation, though in
some cases it has possibly led to skill loss. As Table 3.14 shows, 241 of
the 424 workers indicating both previous and overseas employment did not
change occupations and 156 indicated 'Probable Skill Acquisition'. But as
noted earlier, 118 workers were unemployed before migration. Because a
period of unemployment is perhaps the most rapid source of 'deskilling', it
can then be concluded that in their case skill acquisition was an important
benefit of emigration. In addition to the unemployed workers underlying
the figure for 'Probable Skill Acquisition', there were 38 workers who were

Table 3.14: Skill Formation of Thai Overseas Workers

No. %

No change in occupation 241 56.8
Probable skill acquisition 156 36.8
Probable skill loss 19 4.5
Indeterminate 8 1.9

Total 424 100.0

Source: Sample of overseas worker registration
forms lodged with Labour Department.

- 36 -

previously employed and who took up overseas occupations which would have
improved their level of skills. Thus just over 38 percent of those sampled
probably improved their level of skills. Eight others moved into
occupations which would have imparted new skills, but perhaps at the
expense of 'deskilling' in relation to their previous occupation. In just
over four per cent of the cases, or 19, could it be said that workers
probably lost skills as a result of their sojourn abroad.
On balance, Thailand seems to have fared well in terms of the
contribution of labour emigration to economic welfare. It appears that
remittances have been substantial; a large number of new jobs have been
created, many of which went to the unemployed; and, labour emigration seems
to make a skill contribution to the economy. However, these conclusions
must be considered tentative, for reasons more fully developed in Section


1. It is assumed that the number of hours of overtime are two per eight
hour day paid at 1.5 times basic hourly pay.

2. This estimate is derived from labour force data presented in the Bank
of Thailand, Annual Economic Report, 1981 (1982) and Bank of Thailand,
Thailand: Economic Conditions in 1982 and Outlook for 1983 (1983).

- 37 -

Indonesia, like Thailand, is a recent participant in the export of
short-term labour services. It has only belatedly begun to undertake major
marketing efforts to expand employment prospects in the Middle East. In
the past its main involvement in labour export has been in the inter-
national shipping industry. This involvement goes back a number of years
and is undoubtedly accounted for by its colonisation by the Dutch and its
geographic location.

The Growth in Labour Export and Its Geographical Distribution
Official information on overseas labour migration in Table 4.1
indicates some growth in the number of workers finding employment abroad.
In comparison with Thailand, and particularly the Philippines, this
increase is not impressive. However, as is the case with Thailand, a
substantial proportion of those finding work abroad do so without the
knowledge of the government authorities responsible for administering
labour emigration. Perhaps the largest proportion of those circumventing
official channels are recruited by unlicensed firms, and hence illegally.
Others find their own overseas employment. Of this latter group of
overseas workers, a great many go to Saudi Arabia on tourist visas
ostensibly to undertake their pilgrimage to Mecca. Many stay on and seek

Table 4.1: Number of Indonesian Overseas Workers Processed
by the Ministry of Manpower and Transmigration, 1975/76-1980/81

Year Number
1975/76 1,923
1976/77 2,994
1977/78 8,213
1978/79 10,365
1979/80 7,967
1980/81 12,675

Source: Department of Manpower and Transmigration, Buku Data,
Kegiatan Ditjin Binaguna, Selama Pelita-II (1974/75 S/D
1978/79), Table I.F.2., Page 31 and unpublished data from the
Sub-Directorate for Inter-Regional and Overseas Employment,
Department of Manpower and Transmigration.

- 38 -

Table 4.2: Geographical Distribution of IndonesiayOverseas Workers
Processed by the Department of Manpower, 1980/81

Number %

Saudi Arabia 8,115 64.2
Iraq 249 2.0
Kuwait 155 1.2
Abu Dhabi 24 0.2
Singapore 524 4.1
Hong Kong 434 3.4
Malaysia 135 1.1
Japan 91 0.7
Australia 24 0.2
Philippines 5 0.0
Netherlands 1,777 14.1
Greece 703 5.6
France 246 1.9
United Kingdom 54 0.4
Monaco 25 0.2
Federal Republic of Germany 24 0.2
Italy 23 0.2
Cyprus 22 0.2
Norway 15 0.1

Total 12,645 100.0

Source: Unpublished data from the Sub-Directorate for
Inter-Regional and Overseas Employment, Department of
Manpower and Transmigration.

In terms of officially sanctioned contract labour migration, the
Middle East is the most important source of overseas employment
opportunities for Indonesian workers (Table 4.2). In 1981, it accounted
for 8,543, or 67.4 per cent, of workers processed by the Department of
Manpower. As is the case with both Thailand and the Philippines, Saudi
Arabia is the major employer of officially sanctioned overseas workers.
It is impossible to arrive at an accurate estimate of the number of
Indonesian workers abroad. This is partly attributable to the problem of
illegal recruitment. Estimates of the number of illegal recruits vary
widely. The author was provided with estimates ranging from 5,000 to
60,000. There also appears to be rather large discrepancies between
different sources of official information. For example, the Coordinating

- 39 -

Team on the Middle East (CTME) informed the author that by February 1982
there were approximately 43,000 workers in the Middle East with 20,000 of
these in Saudi Arabia. Official government information, however, put the
number at approximately 10,000 with perhaps 15,000 illegals. The CTME also
places the number of workers sent to the Middle East in 1982 at 3,936,
while placements during the first three quarters of 1983 in the Middle East
amounted to 14,686. Saudi Arabia was the destination for just over 91 per
cent of 1983 Middle East placements. Such discrepanices in estimates make
it difficult to understand how such relatively low annual placement figures
can give rise to a stock of over 40,000 workers.

Industrial Grouping of Overseas Workers
Perhaps some of the more reliable information available relates to the
occupational distribution of overseas workers. By sampling unpublished
data available in the Department of Manpower, the author was able to
determine the industrial groupings of those overseas workers processed by
the Department (Table 4.3). By far the greatest proportion of workers,
61.6 percent, are employed by firms claiming to be in the construction
industry; shipping ranks second, accounting for 31.33 per cent of overseas
employment. The remaining categories are relatively unimportant.

Table 4.3: Industrial Groupings of Overseas Workers,
1981(March, August-December)

Industry Number Percentage
Construction 8167 61.61
Shipping 4153 31.33
Mining 21 0.16
Hotels 97 0.73
Transport 664 5.01
Services 10 0.08
Telecommunications 143 1.08

Total 13,255 100.00

Source: Unpublished data from the Sub-Directorate of
Inter-Regional and Overseas Employment, Department of
Manpower and Transmigration.

- 40 -

The sample shows that Saudi Arabia accounted for 73 percent of
construction workers, while Iraq and Singapore accounted for 20 and 5 per
cent, respectively. The consensus of opinion among interviewees was that a
very large proportion of those workers engaged in the construction industry
are unskilled. Only recently has the skill level of officially recorded
emigrant Indonesian labour begun to increase.
The Netherlands was the main employer of overseas Indonesian seamen,
accounting for 35 percent. Other countries in descending order of
importance were Hong Kong (17 percent), Singapore (10 percent, Saudi
Arabia (8 percent), Kuwait (6 percent), Japan (6 percent) and the United
Kingdom (4 percent).
Of those workers grouped into mining, transport, services and
telecommunication, all were employed in Saudi Arabia. Of those classified
as hotel workers, 85 per cent found work in Saudi Arabia and the remainder
in the Netherlands. A high proportion of those in occupational groupings
classified as 'services' appears to be illegal emigrants. Apparently, a
substantial number of pilgrims stay on in Saudi Arabia and find work as
domestic servants. Without contracts or a proper visa many find themselves
in a weak bargaining position vis-a-vis their employer.

Wages and Conditions
Information on the earnings of Indonesian construction workers in the
Middle East is presented in Table 4.4. The wages shown are those which
have been handed down by the Department of Manpower as non-binding
guidelines for Indonesian contractors and labour suppliers. It appears
that the wage guidelines have been drawn up in consultation with the
Indonesia Consortium of Construction Industries (ICCI). The Department
does not have formal (legal) wage guidelines. Actual wages paid by ICCI
associates vary, often quite considerably, around the wage guideline for a
particular occupation. It is unclear whether all Indonesian workers
destined for the Middle East are provided with free food and accommodation
(or an equivalent allowance). An official from the ICCI stated that ICCI
employees must pay for their food and accommodation.
The wage guidelines in Table 4.4 relate to legal recruiters. The
claim is often made that workers recruited by authorized contractors and
recruiters receive considerably higher wages than workers illegally

- 41 -

Table 4.4: Average Monthly Basic Salary of Indonesian
Construction Workers in Saudi Arabia as Prescribed
by the Department of Manpower, 1981
(U.S. Dollars)

Occupation Wage

Labourer $194
Janitor 220
Driver 259
Carpenter 376
Electrician 376
Welder 376
Mason 376
Ironworker/Rebar 376
Equipment Operator 456
Foreman 456
General Foreman 520-612
Supervisor 612-675

Source: Unpublished information provided by the Department
of Manpower.

recruited. It is alleged that the differences in wages can amount to 100
per cent.
The salaries listed above are exclusive of overtime and end of
contract bonuses. Typical overtime of an Indonesian construction worker in
the Middle East is 2 to 4 hours per day which is paid at 1.5 times the
basic hourly wage. End of contract bonus is typically one month's salary.
A survey of the 4,626 workers coming under the purview of the
Coordinating Team on the Middle East also looked at workers' earnings
(Table 4.5). The monthly wage for an unskilled labourer in Saudi Arabia
varied between US$194 and US$269. When adjusted for typical overtime
payment and end of contract bonus, average monthly earnings over a one year
contract period would range between US$319 and US$444. If we further
subtract the typical recruitment charges, which would average approximately
US$26 per month, then earnings would range between US$293 and US$418. The
actual range will vary widely around these figures depending on (a) whether
the worker is employed by an ICCI firm or is recruited privately, (b)
whether his food and accommodation are paid, and (c) generally, the

- 42 -

Table 4.5: Salary Ranges of Workers Coming Under the
Purview of the Coordinating Team for the Middle East, 1981
(U.S. Dollars)

Salary Range(a) Percentage

Less than $254 45.96
$254 to $328 19.73
$329 to $403 9.53
$404 to $477 14.38
more than $478 10.38

(a) Does not included overtime and bonus payments

Source: Unpublished information from the CTME.

conditions which the labour recruiter or contractor can negotiate for his
workers. However, the purpose here is to compare this typical range of
earnings for an unskilled labourer with what could be earned in Indonesia,
presuming work can be found. The typical Indonesian unskilled labourer
would earn approximately US$25 per month. Dividing this figure into those
which constitute the range of earnings of the typical Indonesian labourer
in the Middle East we find that the earnings differential ranges between
11.7 and 16.7.
It would be fair to assume that this wage differential applies across
occupations. As such, it provides a strong incentive for Indonesian
workers to pursue employment in the Middle East. It also provides an
opportunity for those with the necessary financial resources and managerial
abilities to engage in exporting labour. Unfortunately, it also presents
the unscrupulous recruiter with an opportunity to divest keen potential
emigrant workers of relatively large sums of money, often acquired by the
mortgaging of land and other assets to local moneylenders.

Regulating Recruitment
In Indonesia there are two forms of legal labour recruitment of
overseas workers. First, as in the Philippines, a number of Indonesian
construction companies act as sub-contractors, submitting competitive bids
for the supply of all or a portion of the labour needs of a prime

- 43 -

contractor. Workers recruited to fulfill these contracts are then the

employees of the Indonesian construction company rather than the prime
contractor. Secondly, labour suppliers can serve as employment brokers,
recruiting and supplying labour directly to prime contractors.
Responsibility for the supervision and regulation of labour
recruitment is shared between two directorates within the Department of

Manpower and Transmigration. In the first instance, the Sub-Directorate
for Inter-regional and Overseas Employment is supposed to aid licensed
recruiters in the acquisition of manpower for export. This sub-directorate
falls within the administrative structure of the Directorate of (Manpower)
Utilization which is part of the broader Directorate General of Manpower
Development and Utilization. Contracts of overseas workers lodged with the
Sub-Directorate of Inter-regional and Overseas Employment must be approved
by the Directorate General of Manpower Protection. A number of individuals
to whom the author spoke expressed concern over the very lengthy process -
between two and three months of arriving at a final approval of
contracts. As a consequence, many potential employers of Indonesian labour
choose to obtain their labour from other countries less hamstrung by

bureaucratic red tape. The excessive time delay involved in the approval
of contracts may also give rise to attempts to expedite the approval by
means of financial incentives.
It is somewhat ironic that such a long period of time is necessary to
approve contracts since there are at present no legal minimum salaries by
occupation (only wage guidelines), no legal maximum recruitment fee and no
set administrative fee which the recruiter can charge the employer. Thus
the authorities are not burdened with the task of meeting these details,
which are prescribed in both Thailand and the Philippines.
Individuals or firms outside Indonesia wanting to employ Indonesian
labour have to comply with several regulations. First, they must complete
a 'Job Order Form for Indonesian Workers Requested by Overseas Employers'.
This form requests details of the firm making the request, the type and
number of workers required, their personal characteristics, and the terms
of employment. The form must then be verified by the Indonesian Embassy in
the country in which the worker will be employed, then fowarded to the
firm's Indonesian representative. Although not legally required, foreign
firms are encouraged to appoint an Indonesian representative. At present

there are 74 authorized contractors and labour suppliers. The overseas
firm is free to select a representative from this list. The representative
then must formally request the desired amount of labour from the Department
of Manpower and Transmigration. To secure approval the representative must
provide detailed information of the method and purpose of the recruitment
and the transport of the workers. Furthermore, this formal request must be

accompanied by several documents to confirm that the representative is
properly authorised and a detailed draft of the employment contract
covering the terms and conditions of employment. Once the Department of
Manpower and Transmigration receivesthose documents it then contacts the
local employment offices to recruit suitable applicants or it conducts open
registration. Applicants are then referred to the requesting employer or

his representative for final selection and the Department is also
responsible for verification of the employment contract.
Charges to those seeking work can vary considerably amongst
recruiters. Considering that the administrative costs involved in
recruiting a worker appear to be around US$200, and that legal recruiters
receive between US$150-200 per worker from the employer, it is clear that
some charges are going to be levied on the employee by the recruiter.
Several individuals reported that illegal recruiters commonly charge
between US$317 and US$633. Some recruiters provide workers at no service
charge to their employer-client or his agent, thus the revenues for the
recruiter must come entirely from the worker. In general, the excess
supply of workers almost desperate to acquire overseas work virtually
guarantees that recruiters secure considerable financial gain.

In Indonesia information concerning remittances is scarce. The
central bank, Bank of Indonesia, does not enter overseas worker remittances
as a separate item in the balance of payments. Indonesian emigrant workers
are not required to remit a specified proportion of their wage. As a
consequence, the Department of Manpower, responsible for the administration
of labour export, has no estimates of remittances as do the regulating
authorities in the Philippines.
There is, however, some information on remittances retained by the
Coordinating Team on the Middle East (CTME). The remittance figures

- 44 -

- 45 -

reported by the CTME are worker remittances sent back by associates of the
Indonesian Consortium of Construction Industries (ICCI). In 1982 these
remittances amounted to US$47.9 million. Remittances from January to
September 1983 were US$43.1 million.
If these remittances are attributable solely to the employees of ICCI
associates then we can derive a rough estimate of the stock of ICCI workers
in the Middle East. Let us assume, as we have reason to deduce from
Philippine and Thai data, that on average workers remit 70 per cent of
their monthly earnings, but retain two months' salary plus end of contract
bonus for a one year contract. Next, recall that the average wage of
Indonesian employees of ICCI associates is no less that US$308 per month.
If average monthly overtime payments are added to the basic monthly wage,
assuming an average of two hours per day overtime at time and a half pay,
then average monthly earnings would be US$423.50 per month. If 70 per cent
of this amount were remitted for ten months per year by the average worker,
then the stock of ICCI workers in the Middle East over the period October
1982 through September 1983 would have been 18,586.

Employment Consequences of Labour Export
The labour force of Indonesian numbers some 71 million. Annual
additions to the labour force would be approximately two million.
Unemployment is purported to between 10 and 15 per cent of the labour
force. Given the magnitude of these figures it is clear that, at present,
the export of labour services to the Middle East is insignificant in terms
of providing new employment opportunities or alleviating unemployment. If
we guess that overseas employment created 25,000 new jobs last year, that
would amount to roughly 1.5 per cent of employment growth in that year. In
terms of the number of unemployed Indonesians it amounts to less than 0.03
per cent.
However, these calculations are based on current levels of labour
export to the Middle East. Given the stagnation of oil prices and
reductions in development expenditure by the Middle East oil producers, the
market for labour export is going to become increasingly competitive. It
remains to be seen whether Indonesia can increase or even maintain its
share of future labour demand in the Middle East.

46 -

The Middle East may be the Mecca for Indonesian emigrant workers, but
by far the greatest number finding overseas employment do so in Malaysia.

Estimates of the numbers involved vary widely. For Peninsular Malaysia
estimates range between 100,000 and 300,000, and for East Malaysia,
principally Sabah, between 100,000 and 150,000. Thus it is possible that
Malaysia provides employment for almost a half million Indonesians. In the
light of these figures the importance of the Middle East as a source of
overseas employment is insignificant. We will now turn our attention to
Malaysia and Singapore, which are the two labour importers in ASEAN, and
examine the importance of labour imports to these economies.

- 47 -


Malaysia is a unique case in terms of ASEAN international labour
movements. It has significant levels of both labour export and labour
import. In the cases of the Philippines, Thailand and Indonesia all
significant labour movements are outward, whereas in the case of Singapore
they are inward.

Sectoral Labour Shortages and Labour Immigration.
A casual inspection of macro-economic data could lead one to believe
that international labour migration, as it affects the economy of
Peninsular Malaysia, should be unidirectional--outwards. In 1980 the
economy was experiencing a 5.4 percent unemployment rate. However, despite
this the agricultural sector, construction and some manufacturing
industries have all experienced labour shortages of'varying degrees. In
what follows, an attempt is made to piece together what scant information
is available concerning sectoral labour shortages, their causes, and how
industries have responded.

Agricultural appears to be the sector most seriously affected by
labour shortages; although the shortages do not appear to be spatially
generalised, i.e. they are specific to regions. Lim (1982) attributes the
shortages in estate agriculture to several factors. The shortages in
Johore can be attributed largely to the 'pull' of higher paying urban jobs
in Singapore. In Pahang the shortage is believed to be the result of
increased competition for labour resulting from the expansion of land
development schemes. Inter-regional and inter-estate labour immobility
also seems to play a role in the shortages. Hence regions of labour
surplus coexist with regions of labour shortage. Large estates who are
members of the Malaysia Agricultural Planters Association are also bound by
wage agreements which inhibit wages adjustments as a measure to alleviate
regional shortages.
There are several other factors which appear to have contributed to
the labour shortage in estate agriculture, but which were not mentioned by
Lim (1982). In 1969 the government passed legislation which made it a

- 48 -

requirement that all non-citizens living and working in Malaysia had to
obtain work permits. Many of the Indians, who at that time constituted 60
percent of the plantation labour force, were frightened that once
registered they would be excluded from employment because of preferential
hiring of Malay unemployed. Many ignored the edict. In an ensuing
government crackdown some 20,000 Indians lost their jobs and were sent back
to India. Secondly, in the last decade many plantations have shifted from
rubber to palm oil. The latter crop, while requiring less labour per
hectare, has given rise to a change in the structure of labour demand. In
contrast to rubber, the harvesting of oil palm requires considerable
strength and precludes the use of female and child labour. The changeover
from rubber to oil palm thus created structural unemployment amongst female
and child labour on many plantations. As a consequence, a great many
Malaysian families left the oil palm estates. Third, the rapid growth of
urban employment opportunities, particularly for Bumiputras, has provided
alternatives to plantation employment.
Lim (1982) attributes the emerging shortage of labour in the
smallholding sector, both in rice and rubber, to migration of the young to
urban areas. As is the case in a great many Third World countries, given
the structure and content of formal education, this migration can only
increase and with it rural labour shortages.
Figures relating to the magnitude of labour shortages in agriculture
are scarce. In the small-holdings sector an often quoted figure is some
two million acres of agricultural land being left idle. (Third Malaysian
Plan, 1976). With respect to estate agriculture, the United Planters
Association of Malaysia reported a 6 percent overall labour shortage in
1980. During the first half of 1981 the problem became even more acute
with the overall shortage rising to 7.6 percent. Those in the plantation
sector estimate that the current shortage would number some 10,000.
According to some Labour Department officials the actual figure could be
two-and-a-half times as great (cf. Smith, 1981). New estates seem
particularly affected by the shortages. A survey undertaken by the United
Planters Association revealed shortages of up to 30 per cent on new estates
in the interior. On some estates the shortages have caused significant
financial losses because of an inability to complete the harvest.

- 49 -

In both the small-holding and estate sectors longer term adjustments
in the form of labour-saving crops and techniques of production are called
for. However, a stop-gap measure which is increasingly being relied upon
by estate owners, as well as those in charge of land clearance schemes, is
to use illegal immigrant Indonesian labour. Estimates of the number of
illegals employed vary widely, but the consensus of opinion is that it is
no less than 100,000 and may possibly be as great as 300,000. In Sabah it
has been reported that some 60 percent of that State's 200,000 agricultural
workers are foreigners (Malaysia, September 1983). Whatever their number,
the illegal immigrants are most often employed as contract workers.
Plantation owners are amenable to this arrangement because it takes the
administration of their labour force out of their hands. The contractors
are happy because their profit is derived by collecting the difference
between what the plantation manager pays per unit of labour time, which is
usually the union wage level, and what the contractor pays the workers.
The planned expansion of estate agriculture in combination with the
federal and state land development schemes over the next few years will
undoubtedly exacerbate the problem of labour shortage. State sponsored
programmes, excluding the many schemes planned by the Federal Land
Development Administration (FELDA), will require the clearing and planting
of some 150,000 hectares in Peninsular Malaysia by 1985. Labour shortages
have already begun to affect some of FELDA's development schemes.
According to Smith (1981) there are some areas of central and southern
Malaysia where FELDA relies almost entirely on Indonesian labour, at least
for the initial clearing of land. "Elsewhere there have been instances
where the agency has encountered an absolute shortage. FELDA has had to

pay 7-10 percent annual wage increases over the past few years". (p. 83).
Pressures from estate agriculture to formalize labour import have achieved
a measure of success. In Sabah the government has formalized labour import
with the creation of the Sabah Immigrant Manpower Centre in January 1984.
The centre is jointly run by the Timber Association of Sabah and the East
Malaysian Plantation Association. Only firms registered with the SIMC are
allowed to hire immigrant labour while only workers registered with the
SIMC are allowed to work legally (New Sunday Times, 22 January 1984). The
extent to which labour immigration is permitted to be the solution to the
rural sector's labour shortages, with its negative welfare implications for

- 50 -

Malaysian farmworkers, is currently and will increasingly become a hotly
debated issue.

During the 1970s the construction sector grew in real terms at an
annual rate of 9.6 per cent. In the Fourth Malaysian Development Plan
1981-85 (1981) it has been projected that during the 1980s employment in
the construction sector will increase at 4.6 percent per annum. This would
imply an increase of 150,800 jobs. It has been conceded by the government,
however, that this is a significant underestimate. For example, the Plan
estimates a need for 63,000 additional workers by 1985. An industry trade
group placed the figure at 108,000. The Malaysian Administrative
Modernisation and Manpower Planning Unit, a government agency that
functions as a central labour planning secretariat, has agreed with the
industry estimates (see Smith, 1981).
Whether the construction sector can fill its labour requirements from
indigenous sources is a question which the government must soon face.
Already, there are significant labour shortages. In Johore Bahru alone it
is estimated that the construction sector is short by 10,000 workers. (The
Star, 8 August 1981). The Chairman of the Johore Master Builders'
Association estimated that 70 percent of the unskilled workers in Johore's
20,000 construction workforce were illegal Indonesian immigrants. (New
Straits Times, 29 December 1981). Cement workers, plumbers and pipe
benders are particularly in short supply. In Kuala Lumpur and Petaling
Jaya it is estimated that 60 per cent of construction workers with these
skills are illegal Indonesians. (New Straits Times, 6 November 1981).
Throughout 1982 and 1983 the construction sector remained bouyant. Thus
the labour shortages so prevalent in that sector in the late 70s and early
80s are appearing to continue.
Labour shortages in the construction sector are not solely within the
skilled occupations. Apparently, firms are finding it increasingly
difficult to retain unskilled labourers. For Peninsular Malaysia as a
whole the rate of resignations amongst labourers was 10 per cent; in Johore
Bahru it was 11 per-cent.2
In part the labour shortages of the construction sector can be
attributed to higher wages offered in Singapore which have attracted a

- 51 -

great many Malaysians. The Singapore Construction Association claims that
70 percent of Singapore's construction workers are foreign nationals with
the majority from Malaysia. Construction firms in Malaysia complain that
workers use Malaysian firms to acquire skills and then take up employment
in Singapore.
Labour shortages in the construction sector can also be partly
attributed to institutional factors. The industry is dominated by the
Chinese. This has made it difficult for Malays to acquire skills and
employment. At the unskilled level it is also commonly argued that Malays
seem unwilling to undertake the arduous work involved in unskilled
labouring positions.
One of the reactions of the government to the construction sector's
difficulties has been to introduce an apprenticeship programme which offers
contractors a substantial subsidy for the training of workers. The
apprenticeships are almost exclusively awarded to Malays. As a
consequence, the programme is having very limited success in increasing the

supply of skills as Chinese contractors do not appear willing to cooperate.
Labour shortages in the semi-skilled and skilled occupations of the
construction sector are thus likely to be a continuing concern. The
shortages of unskilled labour are likely to become increasingly resolved by
the use of illegal immigrant labour.

The manufacturing sector is also plagued by labour shortages.
According to the Federation of Malaysian Manufacturers (FMM) a recent
survey of manufacturing firms located in labour-short regions indicated
that within the 128 companies that responded to a survey there were 3,344
vacancies. This amounted to 7.17 percent of the labour force of the 128
firms (FMM, 1982). Of the existing vacancies, 38 percent occurred in firms
in Johore. Eighty five percent of vacancies were in the occupations of
production and related workers, transport and equipment operators and
labourers. Fifty nine percent of respondents indicated major problems in
acquiring skilled labour. The continued growth of manufacturing output
throughout 1982 and 1983 resulted in continued growth in demand for labour
with consequent shortages.

- 52 -

The textile industry in particular has been affected by the labour
shortages. For Peninsular Malaysia the resignation rate for spinners and
winders was 36 percent, while the rate for weavers and related workers was
30 percent (Quarterly Employment Turnover Survey, 1981). The shortage was
even more pronounced for firms in Jahore where the resignation rates
amongst spinners and winders was 61 percent.
The manufacturing sector attributes their labour shortages to several
factors (FMM, 1982). First, the Singapore manufacturing sector pays 20-25
percent higher wages and thus serves as an attractive alternative source of
employment to many Malaysian manufacturing workers. Secondly, because of
improved salaries and conditions the government sector has become a
desirable alternative source of employment. Thirdly, firms in the private
sector, in general, are having difficulties meeting their employment
requirements of Bumiputra workers in accordance with the New Economic
Policy. Fourthly, many of the manufacturing concerns are located in
industrial estates where there is limited accommodation and poor public
transport service. Fifthly, the growth and dispersal of industries In many
states has permitted many workers to return to their hometowns for
employment, leaving some regions short of labour.
Unlike the construction and plantation sectors, it appears that the
manufacturing sector cannot readily rely upon illegal Indonesian labour.
The probability of illegal immigrants being apprehended is said to be much
greater in the towns and industrial estates where manufacturing concerns
are located. However, this has not stopped the FMM from appealing to the
government to establish a guest worker scheme. In fact, one of the
recommendations of the FMM Labour Survey was the provision of legislation
to increase the number of work permits for foreign workers from
neighboring ASEAN countries. Thus a major issue facing the government is
whether and how to regularise and legalise the employment of foreign
Information is sketchy concerning the means by which illegal
Indonesian immigrants currently enter Malaysia. It appears that the
perponderance of immigration, at least into Peninsular Malaysia, is
clandestine. Some of the immigrants make their own way and settle in with
relatives who have preceded them. However, it appears that the greatest
proportion are brought in by syndicates which have links with the large

- 53 -

plantations and construction companies (The Star, 4 August, 1981). The
Indonesian side of the recruitment syndicate is organised by a Taikong
Laut. His scouts recruit willing emigrants who are then supplied of the
Malaysian side to a Taikong Darat. The Taikong Darat then 'sells' these
undocumented illegal workers to a contractor. The contractor may in turn
'lend' the illegals to his sub-contractors. In either case it is not
unknown for the contractor to skim up to 55 percent of the earnings of the
illegal immigrant workers with a percentage going to the sub-contractor
(New Straits Times, 29 December 1981).
Although by far the greatest proportion of illegal immigrants are
Indonesians, a great many workers from Thailand also illegally enter
Malyaysia for work in the construction and plantation sector. In the
northern State of Kuala Terengganu during 1983 some 1,016 illegal
immigrants were arrested. Some 80 percent were from Thailand. In the
first quarter of 1984 Kuala Terengganu officials detained 308 illegal
immigrants (New Straits Times, 6 April 1984). Of course, these numbers
would only reflect the tip of the iceberg.

East Malaysian Immigration
Estimation of the number of immigrants into East Malaysia range
upwards to 350,000. While some information is available concerning the
economic and demographic characteristics of Filipinos in Sabah, which will
be discussed below, none is available concerning Indonesian immigrants.
However, it is likely that the largest proportion are in estate
agriculture, construction and the timber industry. The dearth of any
reliable information on labour immigration into East Malaysia may be to an
extent rectified by an analysis of information underlying the 1980 census.
As mentioned, no studies of which the author is aware have been
undertaken into the demographic characteristics of Indonesian immigrant
workers in Malaysia. More is known regarding the characteristics of
Filipino migrants from the southern Philippines into Sabah. Hassan (1978)
describes the characteristics of Filipino migrants from two municipalities
within the Tawi-Tawi Province in the Sulu archipelago. His method was to
interview households that had a member or members in Sabah. Information
was obtained regarding 400 migrants, equally divided by sex. He found the
median age was 26 for males and 20 for females. Educational attainment

- 54 -

displayed a bi-modal distribution. Just under 50 percent of the migrants
had completed less than 6 years of elementary school while just over 30
percent had completed high school or better. Just under half of those
migrating were reportedly married, 30.5 percent were single while the
marital status of the remainder was not reported. In the light of the
claim that much of the Filipino migration to Sabah is for political
reasons, it is interesting that over 50 percent of all migrants and over 80
percent of males reportedly migrated for economic reasons. In contrast,
only one percent claimed dissatisfaction with their native home as their
reason for emigration. The fact that 32 percent of male migrants were
formerly unemployed underscores the largely economic rationale for
migration. Kinship networks appear to provide the primary source of
information regarding employment opportunities in Sabah. Eighty percent of
migrants apparently relied on information provided by friends or relatives.
The trading ports of Tawau, Sandakan, Sempoerna and Lahad Datu were the
attraction for 16, 20,18 and 12 percent of the migrants, respectively.
Others were dispersed throughout a number of agricultural communities.
The occupational distribution of the Filipino migrants to Sabah is
detailed in Table 5.1. It is noteworthy that over 44 percent of the males
who found employment in Sabah were classified in relatively high
productivity occupations; viz., professional, administrative and
managerial, and skilled or foreman. Surprisingly, just over 15 percent of
those finding jobs appeared to be employed in the farm sector. The
corresponding figures for females were just under 22 percent and just over
38 percent, respectively. Not all were successful in obtaining employment.
Because the categories of homemaker and unemployed were combined it is
difficult to gauge how many females were unsuccessful in finding work. It
would seem, however, that a large proportion of females in this
occupational category were destined to join their husbands and to become
housewives. The fact that 47 percent of female migrants were married lends
credence to this proposition.
It appears, then, that Malaysia is quite dependent on immigrant
workers, despite the fact that a very large proportion of those workers are
undocumented illegals. There is, of course, a pressing need to regularise
labour immigration so that Malaysian industries are more certain regarding
future supplies. It is also important that regularisations should be of

- 55 -

Table 5.1: Occupational Distribution of Filipino Migrants
from Tawi-Tawi to Sabah

Occupation Total Male Female

Professional 5 2 3

Administrative and Managerial 61 49 12

Clerical and Sales 25 10 15

Skilled or Foreman 28 27 1

Semi-Skilled or Unskilled 45 41 4

Fisherman 4 4 -

Farmer 55 27 28

Proprietor 26 16 10

Homemaker or Unemployed 151 24 127

400 200 200

Source: Compiled from Hassan (1978), Table 6.

considerable aid in reducing exploitative labour practices currently
suffered by many undocumented illegal workers.
While it is apparent that Malaysia needs to confront the realities of
its reliance on foreign labour, it is equally important that it must be
aware of the consequences of the movement of Malaysian workers to
Singapore. It is to this issue, Singapore's labour immigration, that
attention is now directed.


1. Very little information is available concerning the effect of the
alleged labour shortages on wage rates. However, there are a
number of reasons why labour shortages may not be manifest in
short-run wage increases.

56 -

2. A rate of resignation of 10 percent or more indicates that workers
in that occupation are very scarce and difficult to recruit.
(Quarterly Employment Turnover Survey: Second Quarter, 1981).

3. According to the Department of Statistic's monthly industrial
survey, the overall industrial production index rose by 2.9
percent over its 1982 level giving a 1983 index value of 287.3.
Manufacturing in particular showed substantial gains with six
major industries registering an increase in excess of 20 percent
(New Strait Times, 21 April 1984).

4. Guidelines for a regularisation programme are set out in Bohning

- 57 -

The current substantial foreign labour component of Singapore's labour
supply is not a recent phenomenon. Indeed, Singapore had its origins in
the inflow of labour, largely Chinese, from the founding of the colony in
1813. Limited quotas were set in 1933 but immigration continued even after
the second world war. In 1953 the governing authorities handed down the
first comprehensive legislation aimed at strict control of the number and
quality of immigrants. However, the legislation did not pertain to the
movement from Peninsular Malaysia until the independence of Singapore in
Newly independent Singapore implemented a tight immigration policy
until 1968 when controls were relaxed in response to increasing labour
shortages. Foreign labour flowed into Singapore in significant numbers as
a result of rapidly growing wage employment opportunities. By 1973
non-citizen holders of work permits were reported to number more than
100,000, which was approximately one-eighth of the Singapore labour force
(Pang and Lim, 1982a). The majority of these workers came from Penisular
Malaysia, primarily from the southern State of Johore.

Immigrant Labour and the Singapore Economy: An Overview
The economic motivations for encouraging labour immigration in a
rapidly expanding and labour-short economy such as Singapore are clear.
Labour immigration can reduce shortages in particular occupations, ensuring
a more complete use of industrial capacity and hence improve 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. It can prevent wage inflation in those sectors 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. 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. Thus during an economic downturn foreign workers can be
retrenched and repatriated, or, at a minimum, the growth in labour import
can be curtailed. It gives labour importing countries access to labour
without having had to incur the human capital costs of that labour, i.e.

- 58 -

the costs of rearing, educating and training that labour. On the other
hand, as argued by Pang and Lim (1982a), the importation of labour on a
large scale may adversely affect some groups by reducing wages or
preventing wage increases.
Information concerning the numbers and origin of foreign workers in
Singapore is detailed in Table 6.1. The preponderance of immigrant workers
are from the ASEAN countries. They constitute over 60 percent of the
foreign workforce. The estimates of the number of non-resident
workers in Table 6.1 require qualification. The figure of 80,000
non-resident Malaysian workers is a conservative estimate derived from 1980
census data. A significant number of Malaysians commute to Singapore
daily for work. A survey of workers destined for Singapore, carried out by
Malaysian authorities between October 22-31, 1981, enumerated 11,818
commuters. Presumably these workers would not have been included in the
1980 census, given they resided in Malaysia. Moreover, since the 1980
census, employment has expanded in Singapore and with it the inflow of more
non-resident Malaysian workers.
According to the Straits Times there are 120,000 150,000 Malaysians
in Singapore. The workforce implicit in this number is 75,000 97,000.
If another 12,000 worker-commuters and another 4,000 new positions created
during 1981 and 1982 were added to the 80,000 Malaysian non-resident
workers implied by the 1980 Census data, we arrive at a figure of
approximately 96,000 permanent resident and non-resident Malaysian workers
in Singapore. This figure is well within the range of workers implicit in
the Straits Times estimate of the Malaysian population.
Since the liberalization of temporary labour immigration the inflow of
labour from 'non-traditional' sources has increased rapidly. For example,
the 1980 non-resident 'South Asian' and 'Other Asian' population would have
yielded a labour force of approximately 4,000. However, at the end of 1981
the Prime Minister of Singapore was quoted as saying there were more than
30,000 workers from South Asia, Thailand, and the Philippines, collectively
(Business Times, 19 December, 1981). This represents a significant increase
over the 1980 labour force from these sources.
The figure of 4,000 non-resident Indonesian workers also warrants
discussion. That number is derived from 1980 census data. Yet the

- 59 -

Table 6.1: Estimates of Foreign Workforce
by Source and Residential Status (a)

Non-Citizen Non-
Residents (b) Residents

Malaysia 17,446 80,000+
Indonesia 1,322 4,000+
China 965 1,300+
South Asia (b) 4,160) 3 0
Other Asia (c) 9,326)
Europe 8,787 1,200
U.S.A. and Canada 3,408 277
Other 231 68
Unknown 19,152 630

Subtotal 64,797 97,475

Total: 162,272+

(a) Non-Citizen Residents are granted permanent resident status while
non-residents are admitted only as temporary immigrants.
Estimates of the number of workers from each country were
obtained by multiplying the permanent resident and non-resident
population from each country by the overall labour force
participation rate for permanent residents and non-residents as a
group, respectively.

(b) Includes Bangladesh, India, and Sri Lanka.

(c) The greatest proportion of this group would be from Thailand and
the Philippines.

Sources: Census of Population, 1980. Releases Nos. 2 and 4.

liberalization of temporary labour importation, as discussed above, would
also apply to Indonesia. It is conceivable that their numbers could also
have increased dramatically, as was the case with 'South Asians' and those
from the Philippines and Thailand. Perhaps the same would apply to those
from China. Because of official secrecy surrounding the
figures, one can only speculate. However, it would not be unrealistic to
assume that the foreign labour force could exceed 175,000. That would be
in excess of 15 percent of the total Singapore labour force, a figure well
in excess of the estimate of Pang and Lim (1982a).

- 60 -

In addition to admitting a great many guest workers to augment their
labour force, Singapore has also naturalised a substantial number of
foreign born persons. Some 319,020 persons born outside Singapore have
become Singapore citizens (Census of Population 1980, Release No. 2, Table
5). If added to the non-citizen population born outside Singapore this
amounts to 527,152 persons. This would imply a foreign born labour force
in excess of 250,000, which would amount to over 22 percent of Singapore's
labour force. Clearly, this represents a substantial amount of human
capital paid for elsewhere.
Table 6.2 contains information pertaining to the occupational
distribution of Singapore citizens and non-resident workers. Non-residents
are concentrated in the low productivity sectors of manufacturing and
construction. Whereas 33.01 percent of Singapore citizen workers were
classified as Production and Related Workers, 62.94 percent of non-resident
workers were in that occupational category. It is interesting, however,
that non-residents supply a disproportionate amount of Professional and
Technical labour and Administrative and Managerial workers. In terms of
proportions, while non-residents make up an overall 7.71 percent of the
combined non-resident and citizen workforce, they contribute 11.01 percent
of the highly skilled workers in the first two occupational categories of
Table 6.2 and 13.74 percent of Production and Related Workers. Another
occupational category which is important to non-resident labour is
services. A significant proportion of those classified under this
occupational grouping would work in the services sector in such occupations
as waiters, hotel workers and as domestic servants.
Focusing on the manufacturing sector of the Singapore economy we can
begin to appreciate the value to an economy of having access to foreign
labour. In 1979, 36,588 non-resident workers were employed in that sector.
They accounted for 11.28 percent of the manufacturing workforce.
Value-added in manufacturing in 1979 was S$6,703 million or S$24,889 per
worker (Census of Industrial Production, 1979). Multiplying the latter
figure by the number of non-resident workers in manufacturing we find the
total value-added by non-resident workers was S$909.9 million.3 Of course,
not all of this value-added accrued to Singaporeans; part would have been
repatriated as profits by foreign firms operating in the manufacturing
sector. Given that the manufacturing sector is the

- 61 -

Table 6.2: Occupational Distribution of Singapore
Citizens and Non-Residents


Singapore Citizens N
Number Percentage

Number P4


and Technical

and Managerial




Agricultural Workers
and Fishermen

and Related Workers

Not Classifiable



Source : Tables 8, 25
Release No.7.








































and 26, Census of Population 1980,

relatively low productivity sector and employs less than one half of the
non-resident workforce, the contribution of non-resident workers to
value-added across all sectors would have exceeded S$2 billion. Also,
these calculations are based on 1980 census data which significantly
understates the actual size of the foreign workforce.
According to Pang and Lim (1982a), the world recession of 1974/75
resulted in layoffs in Singapore's labour intensive manufacturing export
industries. These industries employ a disproportionate number of foreign
workers. The government initially requested employers to lay off foreign
workers first. However, many firms expressed concern over this directive
and argued that many of their more productive and stable workers were

- 62 -

foreigners. However, according to Pang and Lim (1982a), there was a
decrease in new work-permit applications and approvals with the result that
Singapore's foreign workforce remained stable for the next few years.
Singapore's experience appears to lend credence to the hypothesis that
one of the benefits of temporary labour import is that the authorities can
adjust the size of the foreign labour force to accord with business cycles.
This, of course, can save government revenue which might otherwise have to
be devoted to the maintainence of the unemployed.

Current Labour Immigration Policy
Despite the considerable economic gains attributable to labour import,
the Singapore government appears to be quite ambivalent about labour
immigration. For example, in June 1981, in recognition of sectoral labour
shortages, the government was considering relaxing work permit rules
applicable to foreign workers for the following two years, as well as
simplifying procedures to expedite applications (Straits Times, 19 October,
1981). However, by the end of the year the government had altered its
labour immigration policy. In his New Year message the Prime Minister
informed the country that workers from 'non-traditional' sources, other
than those engaged in construction, shipbuilding and domestic services
would become prohibited immigrants from January 1983 (Straits Times, 1
January, 1982). From that date as their work permits expire they would
have to leave. By 1991 no work permits will be granted for the recruitment
of non-resident workers.
The aim of the government's new policy can be seen as another
decisive attempt to put pressure on labour intensive industries to
restructure and in the process reduce demand for unskilled foreign labour.
Since 1970 the government has been aware that Singapore was increasingly
being pushed out of the low-wage-stage of economic development. Hence it
has placed strong emphasis on the promotion of industries which are more
skilled and technologically oriented. To facilitate the desired
restructuring of industry the government introduced a 'corrective' wage
policy in 1979. Under this policy wages were increased annually by
significant amounts to reduce the use of unskilled foreign labour and
encourage the industry to upgrade and move into more capital-intensive

- 63 -

The policy has, to an extent, resulted in a restructuring of the
manufacturing sector, but has been seen as having some undesirable
consequences in other sectors (Pang and Lim, 1982b). In those sectors less
able to substitute capital for labour the wage rises have generated cost
push inflation. The policy has also disproportionately affected
Singaporean firms. It appears that, relative to local firms, foreign firms
have accelerated the industrial upgrading of their workers as a result of
the wages policy because they have better access to finance, technology and
managerial skills (Pang and Lim, 1982b). However, so far the policy does
not seem to have reduced long-term dependence on foreign labour.
Table 6.3 reveals a number of interesting comparisons between firms of
differing capital structure. Wholly locally owned firms are characterized
by the lowest level of value-added per worker. They are also smallest in
size, averaging just over 38 workers. Corresponding figures for firms which
are more than half owned locally, less than half owned locally and wholly
foreign owned are 103, 172 and 231 respectively. A substantial proportion
of Singaporean firms are, therefore, most vulnerable to the direct and
indirect wage increases attributable to the government's corrective wage
policy and immigration prohibitions.

Table 6.3: Manufacturing Firms by Capital Structure

Capital Structure Number Number Value Added
of Firms Firms Workers per Worker

Wholly Locally Owned 2,015 77,169 16,976-
More Than Half Local 361 37,186 23,651
Less Than Half Local 299 51,563 17,787
Wholly Foreign Owned 447 103,416 34,779

Total 3,122 269,334 24,889

Source: Report on the Census of Industrial Production 1979,
Tables 4 and 9.

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Table 6.4: Manufacturing by Major Source of Capital and
and Value Added Per Worker

Major Source of

Hong Kong
United Kingdom
United States
Fed.Rep.of Germany
Other European


Number Number Value Added
Firms Workers per Worker










(a) Major Source of capital is not defined in the source
material. However, by cross-referencing the author has
determined that it refers to firms which are either wholly
or half owned by companies in the country indicated.

(b) The productivity index is derived by dividing value added
per worker by the average value added.

Source: Census of Industrial Production 1979, Tables 6 and 11.

However, low productivity firms are not restricted solely to
indigenous firms. Table 6.4 shows that in 1979 foreign controlled
manufacturing firms from Taiwan, Hong Kong, the Federal Republic of Germany
and Japan had lower levels of valued-added and productivity than did
Singaporean controlled firms. But this was in 1979, the year of the
introduction of the corrective wage policy. While some foreign firms in
that year might have had lower productivity than Singaporean firms, the
capacity of the foreign firms to respond to the corrective wages policy was
probably much greater than local firms. Again, this would be due to the
relatively small size of Singaporean firms and the greater access of
foreign firms to finance, technological alternatives and managerial
resources essential to restructuring.

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Table 6.5: Distribution of Non-Resident Labour
in Manufacturing

Industry Percentage of Work- Value Added Percent Firms Local-
Force Non-Resident per Worker ly Controlled

Textiles 37.7 13 400 58.95
Garments 17.4 7,900 89.29
Sawmills 33.6 19,300 81.68
Furniture 10.3 10,400 86.67
Plastics 12.8 16,500 79.79
Metal Fabr. 10.3 21,800 80.46
Elec. Appl. 9.9 25,100 68.04
Electronics 6.5 18,700 39.38
Trans. Equip. 11.1 31,800 85.38

Source: Compiled from the Census of Population 1980 Singapore,
Release No. 4, Table 51, and the Census of Industrial
Production 1979, Table 29.

It is also interesting that the non-resident workforce is concentrated
in those manufacturing industries which are disproportionately owned by
Singaporeans. The industries listed in Table 6.5 employ 83.35 per cent of
the non-resident manufacturing labour force.
With the exception of the manufacture of electronic products and
components, these industries are disproportionately owned by Singaporeans.
In the industry with the lowest value-added per worker, i.e. garments,
foreign labour accounted for 17.4 per cent of the labour force. The
garment industry also has the heaviest concentration of Singaporean
capital. The industry relying most heavily on foreign labour, i.e.
textiles, was also perponderantly controlled by Singaporean capital. Its
productivity level was also relatively low. Only in the manufacture of
transportation equipment did the productivity of Singaporean firms approach
those levels realized by wholly foreign owned firms.
It appears, then, that the government's desire to rid itself of low
productivity foreign labour is creating a number of undesirable side
consequences. To recapitulate, its policies are having a differential
impact across and within sectors. While the policies are apparently
causing a restructuring of the manufacturing industry, it seems to be
foreign firms which are restructuring. Yet foreign firms use

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proportionately less foreign labour relative to their Singaporean
counterparts. The extent to which the government's policies has and will
cause Singaporean firms to fail is an important research issue. It is also
evident that the government's policies have contributed significantly to
rising costs in those sector where industries are less capable of
restructuring their production to save labour.

Table 6.6: Occupation and Income of Singapore Citizens and
Non-Resident Employees Aged 10 Years and Over


Professional and Technical 1,089
Administrative and Managerial 1,844
Clerical 520
Sales 474
Services 378
Agricultural Workers & Fishermen 324
Production and Related Workers 400
Not Classifiable 350
Self-Employed 715








Source: Compiled from Tables 25-26, Census of Population 1980,
Singapore, Release No.7, Income & Transport.

Income and Productivity Differentials Between Domestic and Foreign Labour
Much of the above discussion has implicitly assumed that foreign
labour is relatively low productivity labour. Table 6.6 provides
information pertinent to the productivity of Singapore's labour force by
residential status. With the exception of those classified as Service
workers, non-resident labour is more highly paid that citizen labour.
There are several occupational categories where these income differentials
are most pronounced. While the income differential between non-resident
and citizens workers averaged 1.74, the differential between Professional



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and Technical and Administrative and Managerial non-resident and citizen
workers was 2.4 and 2.2, respectively.

Table 6.7: Income of Singapore Citizens and Non-Residents
Aged 10 Years and Over by Occupation and Sex
(Singapore Dollars Per Month)


Professional and Tech.
Admin and Managerial
Agric. and Fishing
Production and Related
Not Classifiable

Singapore Citizens
Male Female

1,222 905
1,979 1,283
590 475
544 335
434 303
335 274
463 273
342 475
760 462


Male Female

2,903 1,257
4,146 1,833
770 572
1,111 569
539 240
339 322
502 265
3,561 2,630
1,772 815


Source: Calculated from the Census of Population 1980, Singapore,
Release No. 7, Income and Transport, Tables 25-26.

Table 6.7 contains some further interesting facts concerning the
income differentials between citizen and non-resident labour in various
occupational categories. The focus here is on the relationship between
income and sex. As can be seen from Table 6.7, the overall income
differential highlighted in Table 6.6 derives from the significantly higher
level of income of non-resident males relative to citizen males. The
overall male income differential implied by Table 6.7 is 1.99. However,
non-resident females are clearly in the lowest productivity occupations.
67.05 per cent of non-resident female workers are classified as Production
and Related workers while 23.13 per cent are classified in the Services
occupational category. In the former occupational grouping, non-resident
females average monthly income was S$265. In the Services occupation that
figure was S$240. These two occupations, which constitute over 90 per cent

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of resident female employment, are the lowest income occupations held by
females in Singapore.
We learned from Table 6.2 that non-resident labour is dispro-
portionately represented in the high income-productivity occupations of
Professional and Technical and Administrative and Managerial. However,
when sex is taken into account the representation become even more
disproportionate. Specifically, while non-resident males constitute 9.27
of the male non-resident-citizen workforce, they comprise 14.57 per cent of
those in the above high income occupational categories. Thus as Pang and
Lim (1982a) recognize, "foreign male workers, especially the self-employed,
constitute an 'aristocracy' among the Singapore workforce, [whereas]
foreign female employees belong to its 'underclass'"(p. 16).
Seventy-two per cent of non-resident labour is in what can be
classified as predominantly low productivity occupations. However, within
those occupations, male non-resident labour appears to hold the highest
income-productivity positions. For example, from Table 6.7 it can be
calculated that in the low productivity occupations of Sales, Services and
Production and Related the ratio of non-resident income-productivity to
citizen income-productivity is 2.04, 1.24 and 1.08, respectively. Thus at
least in the occupations of Sales and Services it could be deduced that
non-resident labour is holding down key positions and is probably
disproportionately represented in the skilled and semi-skilled positions
within those occupations. Such workers are not so easily replaced by the
introduction of new technology. At this juncture in its economic
development, and given its efforts to restructure the economy toward more
high value-added industries, Singapore is going to need all of the skilled
labour it can acquire. A policy of selective immigration would bring in
more highly skilled manpower and expertise to speed up the restructuring
process. Within that policy the government could give preference to
workers from 'traditional' sources.
In general, government policy statements on foreign labour quite often
reflect a normative view of the role of foreign labour in the Singapore
economy. The government would like to think, or would like its citizens to
think, that the country is going to be in a position to reduce its reliance
on foreign labour over the next decade. However, the reality of the
situation is that to achieve its growth objectives the economy will have to

- 69 -

increase its reliance on foreign labour over the next decade. Official
targets for GNP growth and productivity increases imply an additional 5,000
foreign workers per year will be needed to make up domestic labour
shortages.5 With economic restructuring educated and skilled foreigners
will increasingly become more important than less productive and uneducated

The Social Cost of Foreign Labour
The substantial benefits accruing to an economy such as Singapore as a
result of labour importation are not acquired without social costs. It is
argued that one of the important costs imposed upon the indigenous
population is in the area of the provision of social infrastructure,
principally housing, schools, social and medical services, roads, parks,
etc (Schiller, 1975; Usher, 1977). This argument is also advanced in the
case of Singapore by Pang and Lim (1982a). Undoubtedly, increased demand
for housing as a result of immigration will raise its cost in the
short-r-in; increased demand for schools, welfare services, medical
services, etc., will lead to pressures on these types of social
infrastructure and perhaps cause some inconvenience to the local
population. Restoring the supply of such goods to their pre-immigration
per capital level is not a costless exercise.
However, such analysis does not take into account the increase in tax
revenue deriving from the increased value-added attributable to foreign
labour. In many countries this increase in value-added will be taxed
directly. Moreover, when this additional value-added, less direct taxes,
is paid out in the form of incomes, it will be subject to further taxation,
including income taxes paid by the immigrant workforce. These sources of
increased tax revenue enables the government to expand the supply of public
goods. Thus, before any conclusion is made regarding the gain or loss in
the provision of social goods due to immigration, the potential increase in
their supply, which might be funded from the increase in tax revenue
deriving from the employment of foreign labour, should be taken into
account. From this perspective this source of social cost of immigration
may give way to considerable net social gain.

- 70 -

It might be argued that if the immigrant population pays less tax per
capital than does the local population, then the latter is subsidising the
former's consumption of public goods. This argument ignores the fact that
the employment of foreign labour generates taxable incomes well in excess
of the earnings of immigrant labour. Above, we learned that in the case of
Singapore value-added attributable to the non-resident workforce would have
exceeded S$2 billion in 1980. This compares with a wage income of the
non-resident workforce of approximately S$80 million in that year.
However, in the case of Singapore the non-resident population most
likely pays a higher level of taxes per worker and per capital than do
Singaporeans. There are two reasons for this. First, the average monthly
income of non-resident workers is S$989, exceeding that of local citizens
by S$417.6 This would imply that non-resident workers pay more income tax
per worker. Secondly, the labour force participation rate for
non-residents is 68.8 percent, compared with 55.1 percent for Singapore
citizens. For every working Singapore citizen there are 2.3 citizens.
This exceeds the dependency ratio for non-residents workers by just over 70
per cent. Hence income tax paid per capital by the non-resident population
should exceed that paid by the local population.
Evidence to support these contentions is compiled in Table 6.8. The
lower average income of Singapore citizens attracts a smaller rate of
taxation than that which applies to non-residents. While incomplete
information does not permit a precise estimate of the different tax rates,
there is undoubtedly a divergence between the two since non-residents, on
average, receive a higher income and, because of a lower dependency ratio,
would have fewer deductions to arrive at taxable income. The higher per
capital tax payments of the non-resident population is also a reflection of
the lower dependency ratio for that group.
To sum up, given the full employment situation in Singapore, the
expansion of many industries is reliant upon imported labour. Thus foreign
workers are directly responsible for an increase in value-added which will
also yield taxable incomes. Moreover, it appears that the non-resident
population pays more income tax per worker and per capital than do
Singaporeans. It appears, then, that Singapore's non-resident population
contributes more than their fair share to government coffers and hence
potential public good creation.

- 71 -

Table 6.8: Relative Tax Burden of Citizen and
Non-Resident Groups in Singapore

Residential Status Taxation(a) per Worker(b) per Capita

Singapore Citizens 4 per cent S$ 275 S$ 117

Non-Residents 15 per cent 1780 1051

(a) The rate of taxation on the personal income of citizens and
permanent residents is based on a sliding scale and ranges from 4 to
45 per cent. The tax rate applicable to the average annual income of
citizens workers is an estimate based on the fact that the rate
applying to S$20,000 is 9.5 per cent. A non-resident who works less
than 183 days is taxed at 15 per cent on the full amount of
emoluments, provided the tax payable is not less than that payable by
a resident in the same circumstances. If a non-resident is employed
for less than 60 days in a calendar year then his imcome is exempt
from tax. What the author does not know is what tax rate would apply
to a non-resident annual income equal to the average'($11,868) if the
non-resident is employed for more than 183 days. If the rate is less
than 15 per cent then the average taxation rate applicable to
non-resident incomes in the table would have to be adjusted downward.

(b) Does not take into account exemptions and deductions.

Source: Compiled from Tables 8, 25 and 26, Census of Population,
1980, Release No. 7 and Investor's Guide to the Economic Climate of
Singapore (1981).

In addition to contributing to public good creation by both direct and
indirect income tax payments, the non-resident population makes a direct
(factor) contribution to the supply of public goods. For example, the
ratio on non-resident school age children aged 5-14 to non-resident primary
and secondary school teachers is slightly under 18. For Singapore citizens
the ratio is almost 21. Thus the non-resident population supplies more
than enough teachers to educate their own children. In the area of medical
and related services the citizen population make a greater contribution per
capital than does the non-resident population. It should be pointed out,
however, that the much lower dependency ratio for non-residents may imply a
considerably lower level of demand for medical services per capital.

- 72 -

Information of sufficient detail is not available to indicate the
factor contribution of non-residents to other public services. However,
the lower dependency for non-residents implies less demand per immigrant on
funds devoted to such social goods as welfare, social security,
unemployment compensation and similar public support payments. However,
the proportion of government revenue devoted to these types of expenditures
in Singapore is considerably lower than in western industrial countries.
Another perceived social cost of immigration is the prospect that
increased housing demand will lead to increased prices. In the case of
Singapore this concern is voiced by Pang and Lim (1982a). While it is true
that labour immigration will increase the demand for housing and possibly
push up short-run housing prices, it is also possible that foreign labour
will make a (factor) contribution to the supply of housing. In Singapore
one of the major sectors of employment of immigrant labour is the
construction sector. Some estimates have it that as much as 70 percent of
Singapore's construction workforce is made up of foreign workers. From
census data, which tends to understate the number of immigrant workers in
construction, we find that the ratio of non-resident construction workers
to non-resident population is 0.12. The same ratio for Singapore citizens
is 0.03. Thus the non-resident population provides four times more
construction workers per capital than do Singapore citizens. Clearly, over
time, rather than contributing to housing shortages and rising prices
foreign workers are proportionately more responsible for increasing their
supply and restraining price rises.
When delving into the social costs of labour importation complete
analysis thus requires the investigator to explicitly recognize that while
foreign labour does place additional demands on social infrastructure it
also makes contributions to its formation either directly through its
actual formation or indirectly through tax payments. Failure to recognize
this fact may lead to the formulation of policies, as appears to be
happening in Singapore, which can only reduce the international gains to be
made through trade in labour services by restricting international labour

- 73 -

Singapore's Restructuring and Malaysia's Development
A issue of importance is the implications of Singapore's restructur-

ing for Malaysia's development plans. At least some of Malaysia's labour
shortages in construction and manufacturing industries, and also in
agriculture, can be attributed to the migration of its workers to
Singapore. If Singapore is successful at restructuring its economy then
much of the current Malaysian workforce in Singapore may find itself
without employment in Singapore. Given the current labour shortages in the
Malaysia economy there should be little difficulty of these displaced
workers being reabsorbed at home, albeit at lower wages.
What should be of particular concern to Malaysia, however, is the
incipient substantial increase in demand for skilled and professional
labour in Singapore. Malaysia is looked upon by Singapore as a
'traditional' source of labour. It can be expected to rely heavily on
Malaysia as a source of skilled and professional labour for its economic
restructuring. Given the higher level of development of the Singapore
economy, Malaysian firms are unlikely to be able to offer salaries
equivalent to what their skilled workers can earn in Singapore.
When Singapore begins to increase its demands on Malaysia's skilled
and professional workers, the latter country may find that many of its
development plans are frustrated. Already Malaysia is suffering from a
shortage of skilled and professional workers (New Straits Times, 4 April
1984). This shortage is projected to increase over the next decade without
accounting for Singapore's likely increase in demand. This possibility
points out the need for close cooperation between the two countries in the
area of manpower planning. While the author is loath to recommend that
Singapore and Malaysia place a quota on the number of skilled Malaysians
allowed to emigrate to Singapore, it may be that this is one policy option
which might be considered (but see also Bohning, 1975). Another more
positive possibility, which would recognize the considerable economic
contribution that Malaysia has made and will make to the development of the
Singapore economy, is for Singapore to financially contribute to a
non-discriminatory Malaysian manpower development fund. A portion of this
contribution can be derived from the difference between per capital tax
payments of Malaysian and Singapore citizens. We have seen that
non-resident Malaysians pay a greater amount of income tax per worker and

- 74 -

per capital than do Singapore citizens. Thus the difference between per
capital tax payments of Malaysians and Singapore citizens should be paid
into such a fund. Contributions could also come from a specified portion
of value-added per Malaysian worker employed in Singapore. In the manufac-
turing sector alone value-added attributable to non-resident labour was
just under S$1 billion or S$24,889 per non-resident worker. If a percent-
age of this value-added per Malaysian worker was paid into a Malaysian
manpower development fund, in addition to the income tax mentioned above,
these funds could go a long way toward ensuring that Malaysia's development
plans are not frustrated by a shortage of skilled labour.


1. For a comprehensive discussion of the benefits and costs of labour
immigration and emigration see Stahl (1982a).

2. The figure of 80,000 is an estimate derived from Release No. 2, Table
24 and Release No. 4, Table 5 of the Census of Population, 1980.

3. While there are significant differences in value-added amongst the
industries comprising the manufacturing sector, the ratio of
non-resident to citizen workers in each of the industries is such as to
not bias in either direction the estimate of non-resident labour's
total value added. For the manufacturing sector as a whole,
non-resident workers receive a higher wage than do civilian workers.
Insofar as this reflects a productivity differential then the estimate
of value-added by non-residents would understate actual value-added.

4. Calculated from Census of Population, 1980, Singapore, Release No. 7,
Income and Transport, Table 26.

5. This is also recognized by Pang and Lim (1982a).

6. This information on the relative wages of non-resident and Singaporean
workers is compiled from the Census of Population, 1980, Release No.
7, Tables 8, 25 and 26.

7. This information is compiled from the Census of Population, 1980,
Release No. 7, Tables 7, 8 and 28.

8. Information compiled from Census of Population, 1980, Release No. 4,
Tables 20 and 56 and Release No. 2, Table 9. Student population of the
ages 5-14 was derived by adding the economically inactive population
aged 10-14 to the population aged 5-9.

9. The manpower training fund should be made non-discriminatory.
Currently the Malaysia government discriminates in favour of Malays in
training schemes and higher education.

- 75 -


It is a commonly believed that the temporary export of labour services
from a poor country will be of benefit in enhancing that country's
development prospects. There are several hypotheses underpinning this
belief. First, as has already been mentioned in the preceding chapters,
the export of labour services is seen to give rise to an inflow of scarce
foreign exchange in the form of workers' remittances and returned migrants'
savings. This inflow of foreign exchange may facilitate development by
alleviating balance of payments difficulties and, by increasing income,
increase savings and investment. Second, the export of labour services is
thought likely to reduce unemployment. Third, it is believed that workers
going abroad will have an opportunity to acquire skills which when employed
upon their return will be useful to the development effort.

The Philippines is a good example of how the export of labour services
can make a significant contribution to a country's foreign exchange
position. In 1983 official overseas workers remittances amounted to US$955
million, or over 21 per cent of merchandise exports. However, as discussed
in Section II, actual remittances during 1983 probably were in excess of
US$1.5 million, or 33 per cent of merchandise exports, making overseas
workers remittances the top ranking export industry in terms of foreign
exchange earnings.
Thailand has also gained a considerable amount of foreign exchange
from the export of labour services. In 1982 remittances of overseas
workers from all countries were estimated to be US$618 million, or 8.9 per
cent of merchandise exports. However, with the recent acceleration in the
rate of labour export, remittances for the first half of 1983 were US$402
million representing over 13.4 per cent of merchandise exports. However,
as is the case in the Philippines, official bank estimates of remittances
greatly understate actual remittances.
For Indonesia, worker remittances are an insignificant export item,
amounting to roughly 0.2 per cent of merchandise exports in 1982.
The ASEAN labour exporting countries see the export of labour services
fitting into their development plans. The inflow of remittances alone has

- 76 -

the potential of increasing the countries' capacities to import those items
strategic to the development process.
Remittances provide the basis for an increase in the transfer of real
resources from the rest of the world to the labour exporting country.
Abstracting for the moment from any possible adverse consequences which
labour emigration may have on domestic industries, it can be viewed as a
uniquely inexpensive way of acquiring foreign exchange. Usually, 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 in that sector. In some countries
remittances may play a key role in the relief of production bottlenecks
attributable to foreign exchange shortages. 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 some degree of planning, and fiscal and monetary
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 will expand aggregate demand in accordance with the value
of the multiplier. The expansion of aggregate expenditure resulting from
the initial increase in household income will further generate an increase
in aggregate savings and hence investment activities. The initial
expansion of investment activity will rely on the potential effect of the
inflow of foreign exchange on the money supply and credit. Assuming
passive monetary policy, the greater the proportion of remittances
deposited in the banking system as savings, the greater will be the scope
for credit expansion with a probable consequent increase in the level of
investment. However, it needs to be recognized that financial markets in
the poor labour exporting countries are usually quite underdeveloped. In
fact, it is lik ly that the major impact of remittance inflows on credit

expansion will take place within "informal" financial markets outside of
official "formal" banking arrangements. As such, credit expansion, i.e.
loans for a variety of purposes, will be largely localized, effecting those
villages with workers abroad.
The increase in aggregate demand, noted above, will be divided between
domestic output and imports. The greater the proportion of increased

- 77 -

demand satisfied by imports the less will be its impact on the local
economy. Let us assume, however, that at least a portion of increased
demand is directed towards domestic goods and services. Whether increased
demand manifests in inflationary pressures depends on whether it applies to
traded or non-traded goods, the elasticities of supply of domestic
industries 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.
However, such a policy cannot prevent inflationary pressures 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
(Ali, et al, 1981; Connell, et al, 1976; Rempel ad Lobdell, 1978;
Connell, 1980; Lipton, 1980; Oberai and Singh, 1980).
Studies from Thailand and the Philippines also indicate that a
considerable portion of remittance income is spent on non-traded goods.
However, the extent to which this is responsible for price inflation
amongst these items is not conclusive. According to Pitayanond and
Chancharoen (1982) the price of agricultural land in the two villages they
surveyed, which experienced considerable Middle Eastern emigration, rose by
almost 200 per cent between 1980 and 1981. However, Singhanetra-Renard
(1983) found in her survey of a Thai village in Chiang Mai Province that
only 5 per cent of those receiving remittances from the Middle East had
bought rice land. This should not have resulted in significant land price
rises. Both studies found that substantial amounts were spent on new house
construction or the renovation of existing dwellings. With regard to the
Philippines experience, Go, et al, (1983) found that after buying basic
necessities and paying off debts households receiving remittances preferred
to use their remaining funds first on housing, second on education and
third on land (or lot) purchases.
Looking toward the longer run developmental value of remittances,
there has been particular concern over how remittance income is used --
whether it 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. However, this is also true with regard to
non-remittance income. The inflow of remittances will lead to an overall

- 78 -

expansion of output and hence personal income. What portion of this income
is saved and channelled into investment is just as important to development
as is the portion saved and invested out of the initial remittances.
Development will require all income receivers to increase the percentage of
their income saved, not just remittance recipients.
One should not conclude on the basis of these studies that the value
of remittances to long-run development is negligible. As discussed above,
what is important is what banks do with any increases in deposits they
receive. To answer this question would require a complete flow of funds
analysis. Also, such an analysis would have to take into account the fact
that the purchase of land and the payment of debts is only an exchange of
assets. What the seller does with the proceeds of the land sale must be
There is yet another reason why one cannot draw conclusions as to the
longer-run developmental value of remittances from a simple survey of
expenditure patterns out of remittances. As was mentioned above, part of
foreign exchange remittances may be directed toward imports. However, in
many LDCs, such as the Philippines, governments design foreign
exchange-control systems hoping to promote 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 for the importing of
investment goods than would be the case if the market decided the
composition of imports.
However, 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. Yet despite the existence of a foreign exchange black
market in the Philippines, Smart and Teodosio (1983) report that 86 per
cent of overseas workers used official banking channels while 8 per cent
used the black market and 2 per cent used both to exchange their foreign
currency earnings. Of course, one must be skeptical of the reliability of
data derived from asking people if they have engaged in an illegal

- 79 -

activity. As was mentioned above, the Central Bank of the Philippines
recorded US$955 million of overseas workers remittances in 1983 while our
estimate was that they amounted to at least US$1.5 million. The difference
suggests that the use of the black market by overseas workers to convert
their foreign exchange earnings is considerably more widespread than Smart
and Teodosio's study suggests.
Implicit in this discussion are several policy suggestions which
should increase the development value of remittances.3 The basic objective
of these suggested policies is to increase the availability of remittances
within the banking system for investment purposes. First, the earnings of
overseas workers which remain in overseas banks are of little investment
value to the workers' home country. It is thus important, in terms of
improving the developmental value of labour export, that labour sending and
receiving countries come to some arrangement with respect to the control of
the deposits of overseas workers' earnings. For example, a branch of a
labour sending country's bank(s) could be established in the countries
receiving that country's labour with a view toward channelling workers'
earnings into that branch bank. Alternatively, and perhaps preferably, the
labour importing country could require employers of labour from a
particular country to deposit the earnings of that country's workers in the
country's branch bank. Such deposits, less reserve requirements, would
then be immediately available for loan purposes within the labour exporting
Second, the governments of the sending countries should try to
encourage a greater degree of savings out of overseas workers' earnings.
This would have the dual benefit of increasing the amount of loanable funds
in the banking system and reducing price inflation amongst non-traded
goods. One possibility which might encourage a greater degree of savings
would be to offer higher interest rates for remittance savings accounts.
It is likely that many recipients of remittances immediately withdraw their
remittance receipts upon their deposit. That money is then hoarded and
delved out as needed over the period of time until the next receipt of
remittances. This banking (or, more correctly, anti-banking) behaviour
needs to be discouraged. If funds are not left in the bank then they are
not available for loans. However, it maybe that banks are serving as a
conduit through which overseas remittances are channelled in part into

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informal financial markets. That is, perhaps a part of the cash

withdrawals from remittance accounts are being loaned out at the village
level. It could be that the types of investments financed through the
informal financial sector are more conducive to "development" and yield a
better rate of return than do loans financed through formal banking
Third, the leakage of foreign exchange from official banking channels
to the black market might be reduced by a policy of offering premium
exchange rates for remittances from overseas workers. Such a policy would
be tantamount to the central bank offering the black market exchange rate
to remittance recipients. Such a policy is persued in Bangladesh with
slight alteration. There the government auctions foreign exchange
remittances with the proceeds going to those whose foreign currency was
auctioned. Thus remittance recipients in effect receive the "market
determined" rate of exchange which would approximate the "black market"
rate. It needs to be emphasized that these premium exchange rate schemes
would not be needed if a flexible exchange rate policy were adhered to in
the first place. It is a fixed exchange rate policy which leads to a
divergence between the official and black market exchange rates.
To summarize this section, the export of labour services appears to be
a uniquely inexpensive way of acquiring foreign exchange. However, care
must be taken that the development value of that foreign exchange is not
dissipated by importing too many consumer goods. Overseas workers earnings
also provide the basis for an expansion of loanable funds within the
banking system. As of yet none of the Southeast Asian labour exporters
have introduced any of the policies outlined above. Indeed, unlike the
Philippines, neither Thailand nor Indonesia requires workers to remit a
fixed percentage of their basic earnings. From a policy perspective much
can be done to improve the translation of remittance inflows into economic

Emigration and Skill Formation
Now attention will be turned to the hypothesis that temporary labour
export will improve development prospects because overseas work experience
will enhance skills.

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Conventional theory views economic development as a process involving
structural changes in an economy. It is hypothesized that over time an
increasing proportion of national output will be attributed to the
production of goods and services requiring increasingly sophisticated
production techniques. Modernization and its associated structural changes
require heavy investment in 'human capital'. 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.
The prospect of workers obtaining their skills abroad, at the expense
of another country, is seen as a possible advantage. Whether labour export
will result in skill formation is, however, open to question (see Bohning,
1975). The hypothesis implicitly assumes that the set of jobs open to
immigrants in labour importing countries requires a level of skill which
exceeds the level initially possessed by the typical immigrant. However,
much of the relevant evidence indicates that the jobs open to immigrants
are generally unskilled, on the lower rungs of the social job ladder and
offer little opportunity for advancement or skill acquisition (Piore, 1979,
Chapter 2).
There is also the possibility that 'de-skilling' could take place. It
is the relatively better educated and better-off that are in a position to
take advantage of emigration opportunities. As such they probably possess
some type of skill. It is possible that the set of jobs available to them
may not permit them to apply their skills, let alone obtain a higher degree
of skill.
Another tacit assumption is that emigrants will employ skills acquired
abroad upon their return. This is also questionable. Many emigrant
workers upon their return may not wish to resume work at the relatively low
wages in their countries. Some may even contemplate emigrating once again
when their savings are exhausted. Secondly, some returned workers may
prefer to use their accumulated savings to set up businesses which may bear
little relation to the skills acquired abroad. It is quite conceivable
that the new business could, in fact, be efficiently operated by those with
no skills at all. In such circumstances temporary labour emigration would
lead to a loss of human capital.

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How have the ASEAN countries fared in relation to emigration-induced
skill formation? The small amount of evidence available is somewhat
ambiguous. In a study carried out in 1980, the OEDB found that 36.49 per
cent of its contract workers were college graduates while another 13.05 per
cent possessed college units (OEDB, Annual Report, 1980). If, however, one
looks at the occupational distribution of OEDB placed workers in 1980 one
finds that under 31 per cent were categorized as (a) Professional,
Technical and Related Workers (30.76 per cent) and (b) Managerial,
Executive and Administrative Workers (.09 per cent). Thus some 19 per cent
of workers with college education were working in occupations requiring a
level of educational attainment considerably less than possessed by the
workers. Those graduating from high school accounted for 28.53 per cent of
the OEDB placed workers. These workers would also have been placed in
occupational categories unlikely to require the level of education they
possessed. It is impossible to conclude from this data that a number of
Filipinos have experienced skill losses. It does indicate, however, that a
considerable number of well educated workers were employed in positions
which did not require their trained skills. From their survey of overseas
workers Smart and Teodosio (1983) conclude that, while overseas workers
gain experience and confidence in the use of previously acquired skills,
their overseas experience, at least in the Middle East, does not appear to
expose them to new technologies and modes of production which could be
construed as skill acquisition. Only 25.4 per cent of the workers inter-
viewed believed they had acquired skills. But these skills, as argued by
Smart and Teodosio (1983), could have been acquired just as easily at home.
In the case of Thailand, however, overseas experience does appear to
have led to skill acquisition. Thai workers were less educated than their
Filipino counterparts. From a sample of 500 oversea workers registration
forms lodged with the Department of Labour, only 6.8 per cent of the
emigrant workers attended or graduated from college, while 4.4 per cent
either attended or graduated from high school. Eighty one per cent had
attended primary school, but only 13 per cent had completed it. It is
nonetheless unlikely that there is a significant difference in the
occupational distribution of overseas workers from the two countries. From
Table 3.5, we learned that out of a sample of 424 Thai overseas workers,
156 had probably acquired skills while abroad (because of significant

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numbers of unemployed workers going abroad), while 241 had no change of
occupation and hence were unlikely to have experienced a significant
acquisition of new skills. In only 19 cases could it be said that it was
probable that skill loss was involved. Of course, for reasons outlined
above, there is no guarantee that skills acquired abroad were later
productively employed at home.
In the case of Indonesia it is also probable that there has been a
substantial net acquisition of skills amongst overseas workers, because a
large proportion of Indonesian emigrant workers are unskilled.
Emigration may thus result in less human capital formation than was
originally anticipated, and in some cases may cause a loss of skill. To
ensure that emigration will result in skill formation, labour emigration
policy should give priority to unskilled and unemployed labour when filling
positions for semi-skilled and unskilled workers. A current problem facing
the labour exporting countries is that many of the positions are being
filled by skilled and educated workers who were employed prior to
emigration. 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. However, even if policies
could be implemented to maximize skill acquisition, it may be difficult to
ensure that returned workers utilise their acquired skill. Evidence from
the Philippines indicates that most migrants do not plan on working in
their previous occupation upon return, let alone apply any new skills
acquired. According to Smart and Teodosio, "... most returning workers do
not see their technical skills as providing them with a reasonable
lifestyle and standard of living upon return." (p.41). Over 76 per cent
said they would like to set up their own business rather than find a job
employing the skills they used abroad. This transformation of skilled
workers into petty businessmen might be considered a loss of human capital
resulting from international migration.
What should emerge from this discussion is that this issue of
emigration and skill formation is complex. It is not clear whether
international migration serves as a positive or negative factor in the
augmentation of skilled labour supplies. Empirical work needs to be done

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on this question. With regard to individual skill acquisition, a
definitive answer will require a measure of the productivity of workers
before and after their overseas work trip, and to compare any productivity
gains with those of a non-emigrating control group. As of yet no such
study has been undertaken. Attempts should also be made to assess the
consequences, in terms of skill supplies, of returning workers moving out
of the labour market and into self-employment.

Output and Employment Consequences of Labour Export
As we have discussed, one of the ostensible advantages of labour
export is that it is an inexpensive and rapid method of alleviating
unemployment. Indeed, the growth of labour export has been a significant
source of employment creation for the Thai economy. Over the period
1980-83 it accounted for at least 10 per cent of total employment growth.
In the Philippines the absolute number of overseas workers, around 732,000,
is impressive. Over the period 1978-83 the growth of overseas employment
opportunities accounted for at least 5 per cent of total employment growth.
Given the size of its labour force, overseas employment opportunities at
this stage are relatively unimportant to Indonesia. Malaysia, despite its
sectoral labour shortages, also exports a considerable amount of labour,
particularly to Singapore. Possibly over three per cent of the labour
force of Peninsular Malaysia finds work in Singapore. From the ordinary
worker's perspective it is desirable to have the opportunity to work in
higher paying Singapore. However, labour export may force up domestic wage
rates and, through a decreased availability of skills, frustrate plans for
current and future output expansion.
In the preceding section our focus was on the possibility that labour
export will lead to an increase in the skill level of overseas workers. At
any point in time a labour exporting country may have a considerable stock
of workers abroad representing a depletion of human capital available to
the local economy (Bohning, 1975). This raises the question as to whether
the incremental productivity gains resulting from skill acquisition abroad,
if any, have been at the expense of the labour exporting country's domestic
The emigration of unskilled and unemployed labour is likely to confer
at least a material gain upon the country of emigration. The emigration of

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unemployed frees that portion of the GDP which they consumed for an
alternative use. It may also reduce government expenditures on the
unemployed. The savings could be diverted to more directly productive
government expenditures.
However, if workers were employed before emigrating a key
consideration is the ease with which the emigrant can be replaced. 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 dependants then the value of that support must be reckoned as a
loss to society, to those remaining behind. Moreover, if the emigrant is
not replaceable and was paid a wage less than the value of his marginal
product then society further loses.
It is commonly believed that the existence of unemployment means that
sectors losing labour through emigration can replace that labour from the
ranks of the unemployed. But labour is highly differentiated on the basis
of skill. 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. Some types of skilled labour obtain their skills
through formal education. Replacement of this kind of worker may be
difficult and too costly. 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.
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 workers are
complementary factors, then a shortage of one will reduce the productivity
and employment of the other. This has important implications for the gains
from international migration for both the exporting and importing
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. The emigration of this skilled labour may reduce a
country's international competitiveness in commodity trade. This is the
prospect which may be facing Malaysia in the near future.

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Labour Emigration and Rural Productivity
So far we have made no distinction between emigrant workers from the
rural economy and those from the urban economy. Information from the
Philippines, Thailand and Malaysia indicates that a considerable proportion
of emigrant workers are from the rural economy. In view of this it is
important to consider the impact the emigration of rural workers may have
on the agricultural sector.
On the basis of conventional economic theory it could be argued that
emigration of rural workers will increase per capital output in the rural
economy (cf. Griffin, 1976). It would be reasoned that thepe are two
forces which should work to improve the income of those remaining in the
rural sector. First, and ignoring distributional considerations, the
productivity rise generated by the increase in the land-labour ratio
resulting from emigration should increase per capital income, even without
the commitment of further effort. Second, increased productivity implies
an increased reward per unit of effort which should be manifest in an
increase in labour input, implying a further rise in per capital output.
When we allow for an inflow of remittances into the rural economy the
actual effect of emigration on rural productivity may, however, vary from
that predicted by conventional theory. The problem is that a portion of
remittances may be consumed in 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.5 If agricultural output did
decline substantially it is possible that a 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 capit should rise,
total output will most likely fall if emigrants were previously
productively employed. Remittances, by adding to income and hence changing

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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. Its consequences with regard to the marketable agricultural
surplus, and hence food prices, remain an empirical question.
Theoretically, the marketable agricultural surplus may rise or decline,
depending on the effect of remittances on the choice of leisure time. If
the level of agricultural labour input per individual, on average, remains
unchanged then a marketable surplus should rise in accordance with the rise
in productivity per worker.
Empirical information concerning the impact of international migration
on rural productivity is scarce and contradictory. Alpat (1971) reports
that Turkish workers from rural areas remit amounts sufficient to cause
family members to drop out of the rural workforce. More recently, Abbasi
and Irfan (1983) found for Pakistan that female labour force participation
rates were less for households receiving remittances compared with those
not receiving remittances. However, they also report that only 13 per cent
of rural households claim that the departure of one of their family members
abroad caused some loss of family output. In her village study in
Thailand, Singhanetra-Renard (1983) found that overseas migration "...
resulted in changes in land tenure status, the size of land holdings, and
in labour structure ." (p.16). While labour shortages were sufficient to
push up wage rates, no evidence was presented as to the effect of overseas
migration on the level of village agricultural output. It appeared that
adjustments were made in the supply of effort, either through increased
family labour and/or hired labour, to ensure that output remained at
pre-migration levels.
Another argument implicit in much of the discussion surrounding this
issue of emigration of rural workers is that labour is homogeneous and
hence there is no difference between emigrant and non-emigrant labour.
Information from the labour exporting countries of Southeast Asia indicates
this is 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

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assume particular importance in the rural sector. One of the obstacles to
rural development is an accommodation to poverty through resignation. It
is the young in any society who are less resigned to their fate and most
susceptible to new ideas which can promote development. Their emigration
removes a force for change and consolidates the power and influence of an
established village authority more accepting of stagnation. However,
insofar as emigration is temporary and migrants return to their villages
with new ideas and funds to invest then migration may be a positive factor
in rural development. Anecdotal evidence suggests that international
temporary migration may, however, lead to internal rural-to-urban migration
amongst returnees. This issue of rural returnees and their impact on
village life and development and their possible internal migration merits
empirical study.
If international migration does result in a permanent loss of quality
manpower such a loss might be compensated for by investment out of
remittances. In fact, it has been argued that migration and its associated
capital inflow can improve rural growth prospects by overcoming shortages
of rural finance and accelerate rural capital formation (Berg, 1965;
Griffin, 1976; Stark, 1976; Byres, 1979). On a theoretical plane 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 (Stahl and Ip, 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 rural
capital formation can be explained by variations in land tenure
arrangements. 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

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direction, with the prospect of an irreversible dependency on external
To conclude this section it merits attention that 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 material 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, perhaps rather suddenly. 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 possibility is
admitted then labour export may be a questionable policy for development.
At a minimum it is a policy requiring careful evaluation of its likely
impact on future domestic productivity. This possibility should also
underscore the need to ensure that the developmental advantages of labour
export are not squandered on short-term material gains.

Emigration and Urbanisation
International migration may also add to the urban problems of poor
labour exporting countries. The problem has two facets: first,
recruitment for overseas employment tends to be centralized in the largest
cities. Very few of the many recruiting firms operating in the
Philippines, Thailand and Indonesia recruit outside of the capital cities.

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. Many
potential workers are migrating to the central cities, in an attempt to
secure overseas employment. Not only do they have to come to the central
city to register, but they must wait in the city because those on the spot
get the jobs. The second facet of the problem stems from emigrants
originating in rural areas remaining in the urban areas on their return
from abroad. The explanations for this "two-stage" migration are varied and
can be social and/or economic.

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