November 4, 2024

High-income nations face historic labor shortages, with 15 million additional workers needed each year to offset aging populations and declining birth rates — a gap costing the global economy USD $3-7 billion daily. Low-income countries, meanwhile, are experiencing rapid growth in youth populations. In Africa alone, 10-12 million youth enter the workforce annually, yet only 3.1 million jobs are created, leaving millions underemployed and in poverty. International labor mobility programs bridge these gaps, enabling workers to earn 6-15 times more than they could at home, reducing poverty and meeting workforce demands worldwide.

However, such programs have the potential to introduce risk for all parties involved (workers, employers, governments, recruiters, and skilling programs), and these parties (especially workers and employers) may be deterred when they feel that the risks of participating might outweigh the benefits. The most glaring and well-known risks related to labor mobility are those workers face in differentiating between reputable programs and scams or trafficking schemes. LaMP is collaborating with several actors in different corridors to reduce these risks. (See our work with the association of Responsible Recruiters in Guatemala, or GAREX, as an example.) However, even reputable and well-run programs experience their share of risks across stakeholders, and this article examines the nature of those risks, how they translate to financial terms, and some potential mechanisms to mitigate them and encourage scale.

The timeline of international labor recruitment can be swift or sluggish, depending on the visa and corridor in question.  Seasonal agricultural workers from Mexico working through the H2A program in the United States experience a relatively swift mobility experience – visa processing and skilling can be completed within a few months.  Some programs, however, require longer timeframes and deeper skilling investments.  Nurses migrating from India to Germany, for example, are required to reach a B2 proficiency level in the German language to qualify for their visa – a process that requires instruction, exams, and visa processing – and can take 12-18 months.  For those nurses to feel confident enough to forgo local opportunities (if available) and sign up for German classes, a provisional job offer in hand is crucial. Even with an offer and promise of reimbursement for all skilling and recruitment costs in hand, investing in their own training can at great expense for these candidates, and migration-oriented credit is not generally available from reputable sources.

Employers, despite a willingness to cover these costs once workers start their jobs on site, are hesitant to pay full training and recruitment fees at the outset of the recruitment process – a year or more in advance.  Numerous job recruits may drop out of the process along the way or fail to meet language certification standards at their first language examination. Even after migrating for a new job, some new workers may leave the employers who paid their way, opting to work in a different institution.  Like employers, recruiters and skilling institutions are also hesitant to front the expenses of training due to this uncertainty in their worker pipelines.

This operational uncertainty in these systems translates into financial risk by introducing the potential for losses at each stage of the process.  Once such programs reach scale, success data will become more readily available, and the cost of dropouts and failures can be incorporated into recruitment pricing, reducing uncertainty and making risk more predictable.  However, with or without this data gap, these multi-nation, multi-step processes will always contain some level of risk, and approaches to mitigating risks across our spectrum of actors varies widely.  In some cases, we see development-oriented programs invest heavily in protecting workers from risk by ensuring that workers neither pay nor deposit any funds for skilling and recruitment processes. However, it is uncommon for these programs to reach scale due to either cash flow constraints, market conditions, or a lack of commitment from recruits. On the other side of the spectrum, we see predatory models that insulate employers from risk but offer no protection to workers.

In every context where LaMP works, we view bacross actors to be at the very heart of effective mobility program design and delivery. We believe that, over the next half decade, deploying risk mitigation strategies will be a key factor in accelerating win-win global mobility. As a guiding activity in many of our engagements, we kick off our work with a risk mapping exercise.  Through this exercise, we look at the skilling and recruitment process in context and examine which actors at every stage. Risk levels will vary depending on several factors. The factors we see as frequent determinants of risk are:

In projects or contexts that have stalled or failed to scale, we often find financial risks distributed unevenly across stakeholders or concentrated within specific steps of the process. For example, recruiters that require employers to commit advances before workers have been trained in key skills (e.g. language or technical training) may find fewer willing corporate partners, leading to demand-side bottlenecks. Such skilling programs, which often have low or no barriers to entry for aspiring trainees, may experience higher attrition rates from before certifications can be achieved, compounding the problem of uncertain or delayed results for employers.  On the other side of the equation, programs that are fully worker-paid can present prospective migrants with financial hurdles that make migration inaccessible or push them into crippling debt. This not only hurts workers but adds to the global perception that mobility is an inherently abusive industry. In our own research, we have found some evidence to suggest that workers who are overburdened with debt may be more likely to abscond or overstay their visas in order to recuperate their outsized migration investment. These factors may lead receiving country governments and employers to shy away from participation – despite these countries experiencing profound and economically devastating labor shortages.

The financial solutions in LaMP’s risk mitigation toolkit can serve multiple stakeholders, and are selected for a corridor or scenario based our assessment of which nudge might be required to balance risk across that system. Ultimately, serving even one stakeholder in a given context might be just the nudge that the system needed to get unstuck.  Among the solutions we consider in this process are:

1. Migrant-focused finance as a necessary tool in cases where employers pay for worker recruitment or skilling expenses upon arrival, or after a period of time employed, but not before costs are incurred (as in the case of nurses migrating to Germany – mentioned above). In other cases, aspiring migrants may want to invest in their own skills prior to engaging a recruiter, or in corridors or contexts where skilling is not charged back to employers. The financial products relevant to these circumstances include:

    • Migration-specific loan offerings that consider repayment moratoriums, demographics of the market segment (e.g. low-income or rural families without formal jobs or collateral), and provisional job offers abroad as design factors
    • Income Share Agreements (ISAs) that provide the upfront capital needed and then align worker repayments to earnings proportionally (thus allowing workers who fail to migrate to pay lower installments and net amounts than those who succeed)

2. Insurance products for both workers and employers can help those who wish to mitigate their own risks for any specific areas of concern. These can include:

    • Health insurance, specifically for blue-collar migrant workers in trade and services sectors
    • Life and repatriation insurance that supports return, especially for those in riskier jobs or in more unregulated labor markets
    • Recruitment insurance for employers, refunding recruitment fees or replacing one worker with another in cases where workers abscond or break contracts
    • Surety bonds to refund workers for lost wages in cases of employer contract noncompliance

3. Worker payment funds that incentivize desirable behaviors and practices within a labor mobility system.

    • Structured incentive and bonus payments to incentivize worker behaviors like retention and home-country return
    • Remediation bonds to repay any illegal or unethical fees charged by recruiters

Strategically placed within the labor mobility process, these instruments can unblock mismatches between supply and demand and lead to greater earnings across stakeholder groups.  It is important to note, however, that lowering risk does not necessarily lower cost. In fact, inclusion of the instruments included above can increase net costs by 5-25% (e.g. by including insurance premiums, interest payments, or other fees).  Given that these are costs specifically designed to reduce uncertainty, avoid catastrophic failures, and unlock access to greater earnings (for workers, employers, and governments), many actors will consider the price of risk mitigation instruments well worth it.  Setting the prices for these instruments can be done through a probabilities-based assessment of the various ‘what if’ scenarios of failure, and a financial valuation of those failures – much like an insurance underwriting analysis.

In a context dominated by legal and regulatory barriers, it is easy to believe that risks for participating actors have already been mitigated.  The reality is that regulation can only take us so far – and that effective scaling of mobility programs requires thoughtful balancing of risks and incentives at the operational level.  In real terms, full-system mobility risk mitigation often just boils down to greater precision in determining who pays for each expense, at which point in time, and through what mechanism.

LaMP is interested in sharing our own lessons and learning from others.  We hope our peers will reach out to engage in this iterative process together.

 

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For examples of instruments already being deployed or piloted in some corridors, see:

1. Migrant-focused finance, including:

2. Insurance products for both workers and employers

3. Worker payment funds

  • Impactt’s remediation bond, that enables employers to repay illegal or unethical worker fees rapidly, releasing workers from debt bondage or enabling them to recover valuable capital erroneously invested
  • Japan’s Technical Intern Training Program (TITP) aims to retain skilled foreign interns in industries like manufacturing and caregiving. (Japanese companies frequently provide an annual contract renewal bonus ranging from $500 to $1,500 for interns who agree to stay beyond their initial year.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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