Tuesday, March 25, 2008

Migration and Freedom 3: Remittances and Guest workers

The WB released its report titled Migration and Remittances Factbook 2008. The top 5 recipient countries in remittances in 2007 were:

1. India, $27 billion
2. China, $25.7 billion
3. Mexico, $25 billion
4. Philippines $17 billion, and
5. France, $12.5 billion.

The Philippine's remittance figure rose from its 2005 level of $13.57 billion, and 2006 level of $15.25 billion.

In terms of country source of remittances in 2006:

1. US, $42 billion
2. Saudi Arabia, followed by Switzerland and Germany.

Total remittance flows worldwide in 2007 were estimated at $318 billion, of which $240 billion went to developing countries. Not included here are remittances via informal channels.

These are huge amounts, much bigger than all foreign aid by rich and big countries combined. remittances are direct people-to-people transfer of resources and income, whereas foreign aid is government-to-government transfer.

Many governments, the Philippines' included, impose plenty of regulations and regulatory fees to their people planning to work abroad or already working abroad. Much of those mandatory fees are indirect tax grabs.

On April 06, 2006, I made these observations:

Migration and welfare: why they mix together

The "guest worker" and similar proposals related to migration is a hot topic in the US these days. In Europe, raising the mandatory retirement age and migration is a continuing hot issue too.

Some people, including previous migrants who were granted residency or citizenship in their adopted countries, want to restrict if not close the migration door since they're already in, because they see the influx of more migrants as potential competitors for the jobs or professions that they are currently practicing. If they think that way, then the locals and original citizens who were displaced, even temporarily, when they were allowed entry, should have been correct in opposing the entry of early batches of migrants.

If you are a businessman in the US or western Europe or Japan, with global competition getting more fierce, you have 2 main choices to bring down your costs and enable you to sell at a more competitive price: (a) relocate your business or factory outside to countries where labor, taxes, land lease or rental, are cheaper, or (b) retain your business or factory in your country but hire cheaper labor, that migrants are willing to supply.

The argument of some people against the "guest worker" program in the US is that it will encourage more illegal immigration because more and more people will just make their way to the US (esp. from Mexico where one can literally run or to the border). The program proposes that those who don't have the papers to stay in the U.S. legally will be allowed to stay as long as they could find an employer who will hire them. This will irritate and give undue friction to people who apply for migration through legal ways because this is a costly and time-consuming process. Thus, the "guest worker" program is seen as rewarding violators of US migration laws while penalizing those seeking formal and legal migration entries.

I think the "guest worker" program is one way to circumvent the bureaucratic process by the US immigration laws. Many people in the US, businessmen and ordinary households alike, are in desperate needs of hiring foreign workers (like a Filipino household with young children in need of a Filipina nanny), but the US immigration procedure is so bureaucratic and strict, so some guys lobbied to have "guest worker" program rather than lobbying to change and relax the current immigration laws.

Governments (US, European, others) are supposed to be out of the picture in voluntary contracts between private companies and their potential employees, between private households and their potential household workers. Labor costs in those countries are expensive mainly because of rigid labor laws like high minimum wage, mandatory health insurance, unemployment insurance, maximum working hours, paid leaves, etc. So some migrant households would rather hire their relatives or neighbors from their original countries to render household work for them at a much cheaper pay.

But the governments of rich and welfare countries would assert that they need to intervene in the private and voluntary contracts between employers and potential workers because of the "social welfare to be given" to the new-comers. One medium- to long-term option is to cut government welfare programs in exchange for tax cuts. A household who got cheap foreign workers to help in their house and take care of the kids already experience welfare, much better and more direct than some government welfare programs that require high and multiple taxes to sustain. With tax cuts, households can save more for their own HMOs and other personal and pension needs someday.

The US government can learn from the current serious "French (and German and Italian and Dutch and...) labor problem". The labor laws of the latter are so "rigid", so "pro-labor", that companies and households are not hiring many people, so that unemployment is so high (10-11% unemployment rate for France for the last 30 years). The government and labor laws are too interventionist and threatening that many companies and households are scared to hire additional workers.

Meanwhile, one report today in the international papers, the Danish government is proposing to raise retirement age from 65 to 67 (in Sweden, they're proposing retirement of up to 69 or 70+ years old). That is, for the younger generation to work longer, to maintain the expensive welfare system for an ageing and "greying" population. Another option by the Danish government is to allow more migrants, young ones. They will work long and hard, to pay high taxes, so the generous pension of the retirees will be paid by the government.

On the extension of retirement age, one may ask -- which gives more welfare: more pension but retirement age of 67 or older, or less pension but you retire at 65? And you go back to the Newtonian 3rd law of motion: for every action, there is an equal opposite reaction. Reformulated in the current issue as: for every welfare, there is an equal opposite diswelfare.

(See also, Migration and Freedom 2: Taxing residents abroad, March 19, 2007)

No comments: