“Germany in search of qualified workers.” Lately, no one in Europe’s biggest economy has been able to avoid this slogan: Scrutinized in countless studies. Fiercely debated in all political talk shows. Posted on almost every restaurant door. These days, labor shortages in key sectors like health care, construction, manufacturing or hospitality seem omnipresent, threatening the country’s economic competitiveness and future welfare system. In response to this, the German government is enacting a new Skilled Immigration Act this year – a set of regulations and deregulations targeted at providing easier access to the labor market for non-EU citizens.
While almost three in four Germans agree that more immigration is needed to combat labor shortages, some fear that overseas recruitment of workers could have negative effect on the sending – and especially low-income – countries. By recruiting workers from less developed countries – so the argument goes – richer countries like Germany cause them lasting harm. Those who could play key roles for the development of their home countries leave for better work and life prospects elsewhere. The consequences are supposedly less human capital, less growth, less innovation and persisting poverty in their home countries.
However, there is overwhelming evidence showing this is not the case. An OECD analysis assessed 54 countries experiencing critical health staff shortfalls. It found the estimated critical health staff shortage is five times the number of health staff who have emigrated and concluded that “although migration may be an important factor, it is not a decisive one, even in the most critical cases.” Several other studies showed that the ability to move workers across borders within a specific sector increases the potential wages and opportunities for workers to train in that sector. In all these cross-country analyses, opportunities to migrate to wealthier countries in fact resulted in an increased number of better trained workers in the sending country, even as other workers migrated.
Beyond that and in the vast majority of cases, cross-border labor mobility produces major benefits for those who leave as well as those who stay. That is given also by the ongoing demographic changes, causing many developing countries to struggle with creating enough jobs for their increasingly young populations. Still, quality labor mobility programs depend on effectiveness of policies that guide them. Therefore, it is crucial that governments and policymakers consider measures and approaches that have proven to lead to quality labor mobility pathways.
The upsides of labor mobility for low-income countries
While it is largely undisputed that if recruitment is undertaken responsibly, both migrant workers and receiving countries benefit from working abroad, the sending countries undoubtedly benefit from quality labor mobility programs as well. There are three main areas, where the positive effects of workers leaving for jobs abroad are clearly visible: cash remittances, the transfer of knowledge and technology, and trade.
First, the best measurable effect of labor mobility are remittances – excess money gained from salaries earned abroad and sent back home by migrant workers to their families and relatives. As an important source of income for countless families around the world, remittances provide a direct flow into the hands of the people who need it the most, often allowing them to escape poverty. Beyond being a critical economic stabilizer, remittances in many contexts have shown to boost private spending on education and health, improving livelihood of millions around the globe. There is solid theory and practical evidence that the effect of labor mobility is much larger than any development program has achieved in sending low-income countries, and remittances alone are as large as or even larger than foreign aid.
Worldwide, remittances have shown positive transformative effects. Countries like the Philippines or those in the Western Balkans, which have witnessed reliable streams of remittances over the years, have seen the incoming funds translated into growth of their GDP and reduction in poverty. Similar evidence can be found in Kerala, a region in India with a long-standing history of outward migration, where comprehensive data suggests that remittances-fueled consumption, savings and social investments augmented the domestic economy. Largely due to labor mobility, Kerala is nowadays the least impoverished state in India and has the highest literacy rate as well as life expectancy.
Second, labor mobility programs can foster the transfer of skills, technology and know-how from receiving back to sending countries. This is particularly the case, when skilled migrants return home after several years of education, training and professional experience aboard. In Taiwan, between 1985 and 1990, for example, around 50,000 migrants returned from abroad, bringing home expertise that fueled a boom in the domestic high-tech sector. In the Philippines, the government promoted nursing qualifications as an export product and means to strengthen the domestic economy in the long run. As a result, the associated knowledge transfer helped the country to build a high-standard nursing education and to create more quality health care jobs domestically. More recently after the 2011 Greek financial crisis, entrepreneurial returnees in Albania helped to expedite the country agricultural sector’s transition from subsistence to commercial, boosting wages and increasing job opportunities for Albanian workers. Some current labor mobility schemes even have skill accumulation baked into their design. India’s agreement with Japan’s Technical Intern Training Program is a promising example as Indian workers are trained to Japanese standards and foreseen to return home after one to five years.
Third, labor mobility helps to build business networks and trade relationships between sending and receiving countries. The connection between trade and labor mobility processes is complex and highly depends on the form of migration. Across an ample body of academic research, however, it is incontestable that labor mobility always has a positive effect on trade flows. For instance, long-term studies from Canada show that each immigrant on average generated CAN$8,000 in Canadian imports and CAN$3,000 in exports between the 1980s and 1990s. Other examples can be found in Turkey where business ties with Germany facilitated by highly skilled migrants of Turkish origin have positively influenced the development of the local automotive sector.
If labor mobility pathways are blocked, none of these benefits show and many people are excluded from a path to economic opportunity. Instead, matching excess labor supply in one part of the world with the demand in another where labor is scarce has the potential to yield positive results for both sides of the corridor. For sending countries specifically, that includes all the benefits mentioned above while at the same time decreasing the pressure on their own labor markets, which often cannot absorb their increasingly youthful population.
Therefore, sending countries have been increasingly advocating for more new and better conditions within the existing labor mobility pathways. This has been clear from actions of some countries such as India or Indonesia which have been very proactive in requesting visa provisions in trade agreements and signing bilateral migration agreements, thereby promoting skills development and exchange as well as worker protections. Similarly, Germany has formed mediation and placement agreements for nursing and other sectors with Tunisia, Jordan, Bosnia-Herzegovina, the Philippines, Colombia, Indonesia and India.
A matter of management
While labor mobility can clearly bring many benefits to the sending countries, the actual outcomes and quality of the pathways depend on policies that guide these programs. The following are some examples of what governments and policymakers need to keep in mind when establishing their labor mobility pathways.
First, programs allowing employers to hire workers from abroad should always take a context-sensitive approach. If a large numbers of receiving countries boost recruitment efforts from one particular country, region, sector, and in one core skill level at the same time, adverse effects may appear in the short and medium term. It is therefore always advisable to adopt a regional and sector-sensitive approach that considers the current and future supply and demand for training and labor in a certain location and industry. While the majority of low-income countries have been struggling to create enough jobs for their young populations, it is crucial to consider the countries’ population growth estimates when establishing new labor mobility pathways.
Second and closely related to the first point, governments of sending countries should be capable to exert agency and ownership in the labor mobility process. It is crucial to make sure that sending countries have a major say in the bilateral and multilateral discussions and that they can take well-informed policy decisions based on a clear picture of their own future skills needs. Supporting them to foster effective labor market information systems and skills forecasting capacities may help not only to improve better active labor market policy domestically, but also to establish the right national provisions for overseas recruitment.
Global Skills Partnerships (GSPs) are an impactful but still underutilized solution to facilitate sending countries’ agency. GSPs are bilateral labor migration agreements between receiving and sending countries where the former agree to provide the technology and finance to train cohorts of non-migrant domestic as well as potential migrant workers in sending countries prior to departure. By featuring both “home” and “cross-border” training tracks, GSPs are designed to ensure more people are being qualified in occupations that are critical for both sending and receiving labor markets.
Third, sending countries should be supported to capitalize on the positive effects of labor mobility by developing and building strong diaspora engagement policies and networks. Findings from countries such as India show that a structured form of diaspora engagement can help reap the positive effects of outward migration, foster cross-border business partnerships, channel remittances into impactful investments, and find ways to provide incentives to build a critical mass of qualified and experiences returnees in the long run. India has specifically taken remittance flows to the next level by issuing bonds and securitization to leverage earning power of their overseas citizens into investments at home – particularly for rural areas. Up until today, India has raised billions of dollars from diaspora bonds. Vietnam, as another example of diaspora engagement, regularly involves its diaspora in formulating its economic development plans. Additionally, the “Global Ireland” diaspora strategy can serve as a blueprint for developing countries to facilitate economic networks pro-actively. This can be done through regional business forums, alumni networks as well as other affordable supporting efforts to advance trade and investment priorities.
German policy makers should avoid fears of potentially hurting developing countries when embarking on their quest for more qualified workers from abroad. In fact, many sending countries welcome the opportunities and seek to actively engage on increased labor mobility while keeping an eye on ensuring the protections of their workers within these programs. Labor mobility is especially beneficial to low-income countries with increasingly young populations that struggle to create enough jobs for their workers.
While labor mobility has definitely a positive impact on workers and receiving countries, it has also proven to bring undoubtable benefits to the sending low-income countries – even more than any other tool on the development agenda. Still, it is crucial that policymakers take certain approaches and measures that lead to quality labor mobility pathways. Context-sensitive approaches, programs that help building workforce also in the sending countries, such as GSPs, and diaspora engagement are some of the examples of good practices. Besides that, it is crucial for the receiving countries to recognize sending countries’ agency and support of effective labor market information systems and skills forecasting capacities across the world.
The Labor Mobility Partnerships (LaMP) published also a related article in German, available here.