OFWs, labor migration, cheap oil and TPP

* This is my article in BusinessWorld last February 04, 2016.

01
Labor mobility and migration across countries and continents is a result of push and pull factors in both the labor exporting and labor importing or receiving countries. Labor-surplus countries generally have lower wages and labor skills due to limited employment opportunities while labor-deficit countries generally have higher wages and skills training.

If labor migration is heavily restricted via multiple regulations and permits, taxes and mandatory contributions — if not prohibited outright — the wage gap and income inequality between the labor-surplus and labor-deficit countries will worsen.

If labor migration is less restricted, then the wage gap and income inequality between the two group of countries will narrow or lessen. And if such migration is fully allowed and assured, then global wages per industry and sub-industry, wages per skills levels — other things being equal or held constant — will move towards equilibrium or near-equality.

Remittances of nationals who are working abroad are among the biggest sources of revenues of both governments and households for many countries in the world today. The top five in remittance inflows worldwide are India, China, Philippines, Mexico, and France. (See Table 1)

02
In Southeast Asia, learning the trade of labor migration rather quickly aside from the Philippines are Vietnam and Indonesia. From 2004 to 2014 or in just one decade, Vietnam’s remittances have expanded 5.2 times while Indonesia’s have expanded 4.6 times over the same period. Impressive.

In South Asia, besides India, Pakistan, and Bangladesh, Sri Lanka and Nepal are also learning the ropes as well. Nepal in particular is very dependent on remittances, which comprise nearly 30% of its GDP in 2014.

In Africa, Nigeria’s remittances have expanded nearly 10 times from 2004 to 2014 and Egypt’s have expanded nearly 6 times. In Europe, Ukraine’s remittances increase over the same period was the fastest in the world, expanded by almost 18 times.

The Philippines’ remittances expansion over the same period was no longer huge as the big jump was experienced in the 80s and 90s. There are differences in the figures by the World Bank (WB) and the Bangko Sentral ng Pilipinas (BSP).

For instance, based on BSP data: 2014 remittances reached $24.35B (vs WB’s $28.4B).

For 2015, BSP’s forecast is $25.3B while WB’s forecast is $29.7B. The difference could be due to different accounting method used by the WB that applies to other countries in its global database.

It should be noted that the numbers are only for remittances that pass through the formal banking and remittance centers. They do not include money that are brought in personally by the migrant workers when they come home, or via relatives and close friends co-workers returning home.

Estimates of total remittances in the Philippines via formal financial channels + personal/informal channels range from $35 to $40 billion in 2015 alone.

The Center for Indonesian Policy Studies (CIPS), a new and independent, market-oriented think tank in Jakarta, is conducting a comparative study on labor migration by the Philippines and Indonesia, with the explicit goal of learning from the Philippine experience, especially in labor protection during and after deployment.

Based on latest available data from the World Bank, of the top 10 destinations for OFWs in 2013, four are in the Middle East, five in the Trans Pacific Partnership (TPP) bloc, and Italy. (See Table 2)

The current low oil prices and approval of the TPP Agreement will have initial and short-term negative impact on the deployment of OFWs for two reasons.

One, Saudi Arabia and other Middle East economies will demand less foreign workers because of their shrinking revenues from oil exports. And two, the Philippines will temporarily lose out to Vietnam and Malaysia in some services and labor mobility as they are TPP members and hence, will benefit from lower tariff and non-tariff barriers (NTBs) by the big TPP economies like the US, Canada, Japan and Australia.

There are several policy implications and reform measures for the Philippines.

One, reduce the number of permits, procedures, taxes, and fees for both manpower agencies and the prospective OFWs as the competition from upcoming labor exporting economies will become more intense. In this aspect, the Philippines should follow the lead of Vietnam, Indonesia, Pakistan, Bangladesh, Nigeria, and Egypt.

The Philippine Overseas Employment Administration (POEA) can shorten the process for private manpower agencies which have good track records over the past 10 years or more.

Currently, the procedures and permits required of new recruitment agencies and those that are 10+ or 20+ years old are the same.

Two, the Philippines should pursue its application for TPP membership. Thailand and Indonesia are almost sure to apply for membership in the next round of membership expansion, they will reap the benefits of bigger market access, both goods and services, to the richer member-economies of TPP.

Three, reduce the business bureaucracies, taxes and fees in the Philippines so that more businesses, local and foreign, will come and stay here. Then more and new local higher-paying jobs will be created, and this will help absorb the workers and professionals from the Middle East who are sent home due to cheap oil.

Bienvenido S. Oplas, Jr. is the President of Minimal Government Thinkers, and a Fellow of the South East Asia Network for Development (SEANET).minimalgovernent@gmail.com

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