Do no harm to unskilled migration

Unskilled migration tends to be viewed as unremunerative in terms of both earnings and remittances. Surely, the intent cannot be to discourage migration of unskilled workers who earn orders of magnitude less at home than they do in their lifetime through migration. Migration policies are too important for Bangladesh to be decided without regard to the empirical realities.

Some basic facts

The magnitude of migration outflows, which slowed briefly in 2020, has accelerated in the last year and a half. About 15% of the total working-age male population were currently or in the past employed overseas as of 2018. Although Bangladeshis have gone to 173 countries for work, more than 95% of workers migrated to around a dozen countries. Over two third of Bangladesh's migrant labor are low skilled and unskilled.

Bangladeshi migrants fare poorly on the earnings metric compared with their counterparts from the Philippines, India, Pakistan, and Sri Lanka. The International Organization of Migration quotes estimates by recruitment agencies suggesting that for every $100 earned by a Bangladeshi, $200 is earned by an Indian worker and $300 by a Sri Lankan. Lack of skills keeps them in low paying jobs. They remit at the cost of decent living, nutrition, and health care. This inspires the narrative that migration of workers with internationally recognized vocational skills would enable securing higher paying jobs and better workplace protection. This would lead to better lives for the migrants, their families, and greater remittances for the country.

Enhancing migrant skills does not mean discouraging the unskilled from migrating. Relative income gains tend to be large for unskilled migrants despite high financial costs and more stringent legal-political barriers to unskilled migration. This is revealed in a recent analysis (Laurent Bossavie, Joseph-Simon Gorlach, Caglar Ozden, and He Wang, Institutional Voids, Capital Markets and Temporary Migration: Evidence from Bangladesh, World Bank 2022) utilizing Bangladesh Return Migrant Survey conducted by the World Bank in 2019. The BMRS collected detailed information on the economic decisions and activities of 5,000 temporary migrants who returned to Bangladesh since 2010. It covered all districts. What follows draws heavily from evidence produced by this research.

Unskilled migration is bankable

International migration typically looks like an investment project: the payment of an upfront cost, a finite time profile of returns in future, and risk. Unskilled migration is typically temporary. Some may be circular and a tiny fraction is permanent. Workers migrate to earn money abroad and then return home.

Migration is an expensive endeavor. At their median values, the cost of migration exceeds pre-departure household annual income by a factor of 2.6. The largest part of migration expenses (56%) comprises the costs of the intermediary agencies who match workers with foreign employers. More than 10% of individuals require at least 10 years to raise the entire cost through their earned incomes. The cost of migration for Bangladeshi workers is second highest in South Asia after Pakistan. Yet 3 to 4 million aspire to migrate annually while 0.5-0.7 million make it, according to the industry insiders.

It passes the benefit-cost test handsomely. The average ratio of total accumulated earnings abroad over the cost of migration is 9.3. Average break-even duration is 1.1 years with 75% of migrants staying longer. The median and the average duration of stay are respectively 4.7 and 6.5 years with 88% earning more than their migration costs and 29% earning at least ten times the cost of migration. Taking out home country earnings as an opportunity cost of migration reduces the average ratio of earnings abroad to cost of migration to 5.8, still well above 1. Not all excess earnings can actually be accumulated as savings because of higher living expenses overseas. Taking the excess cost out leaves the excess saving-to-cost ratio at 3, the break-even duration 4.2 years with 54% of the migrants staying longer.

Financial risk is easier to price. Workers going to the Persian Gulf or Southeast Asian countries have valid contracts specifying a wage and initial duration for their employment. Such contracts assure lenders that the migrant will have enough income to pay back the loan. They almost never migrate with family which is as good a return home guarantee as one can get.

Migrants face the very real risk of being forced to return earlier than expected. Among return migrants in Bangladesh, 24% of migrants reported that they were forced to return due to visa or contract issues. On average, such a migrant stayed abroad for 4.8 years, 32% less than the average duration of 7.1 years among those who returned voluntarily. Earnings to cost, excess earnings to cost, and excess savings to cost indicators are all significantly larger for migrants who returned voluntarily compared to those who were forced to return.

The likelihood of defaulting on a loan to finance migration is considerably lower than a micro-enterprise loan. The share of temporary migrants whose total earnings overseas are lower than the total migration costs is 11.9%, compared with the 60.2% estimated share of Bangladeshi microentrepreneurs who do not generate sufficient profits over the lifespan of their enterprise to cover initial investment costs. The agency problem is more pronounced in the case of informal entrepreneurship. It is hard for lenders to verify self-employment profits.

It is life changing

The returns extend beyond the migration period. Temporary migrants are often successful in starting entrepreneurial activities after returning. Self-employment rates are high among migrants who came back home. They choose not to take wage employment because wages of low-skilled workers start declining at around age 45 and the jobs, such as in construction and agriculture, tend to be physically demanding.

Engaging in self-employment after return increases their lifetime incomes significantly compared to a counterfactual scenario where they could not have migrated. About 65% of return migrants who were not self-employed prior to migration became self-employed after return. Most self-employed are able to maintain steady incomes without subjecting themselves to physical drudgery until they retire.

Remittances and repatriated savings primarily finance the new businesses set up by returning migrants. Temporary migration is a tractable path to accumulate the capital required for entrepreneurship on the road to self-employment. It enables creating business enterprises that would not continue to depend directly or indirectly on remittance flows to remain viable.

The average excess income after return can be as high as 2.2 times the savings from abroad invested to create businesses. This tops up value from temporary migration.

Overseas employment and earnings embed decisions to work, consume, save, invest, and remit in the hands of migrants and their families. Money sent home enhance their families' standards of living while contributing nationally to economic activities and the external balance. Remittances at times are even larger than the net annual export receipts from garments.

Skilled migration is a mixed blessing

There is inconclusive association between skilled migration and remittances at the extensive margin (whether more-skilled individuals are more likely to remit) and a strong positive relationship at the intensive margin (they send more when they do remit). Cross country evidence combining both the extensive and intensive margins show that more educated migrants do remit significantly more. But there is uncertainty about continued remittances from skilled persons who eventually migrate with their families.

Skilled migration can equate with brain drain. There is brain drain if countries invest in skilling people who leave to work in another country. Many of those, such as doctors and teachers, who make a better living overseas are the very ones the country could least afford to lose. The extent of brain drain effects depends on skills complementarities, economic conditions, and the local business environment.

High skilled workers prefer to migrate because they expect to be more productive when matched up with the skilled labor force of the host country. High-skilled workers—nurses, engineers, professional athletes, scientists—complement each other, giving rise to increasing returns to skills when they work in close proximity. These tend to make brain drain, or its converse brain gain for the host countries, self-reinforcing.

Skilled migration movements from Bangladesh tend to be permanent or settler migration rather than temporary, contract or circular migration. Skilled workers often cannot find positions to match their skills at home labor markets. Cronyism, dynastic favoritism, and social fractionalization exacerbate the labor market frictions when access to premium employment and career development opportunities is not determined primarily by merit-based competition.

Prevention is no cure

The social costs are harder to quantify. Most migrants are young married males. Many end up in physically demanding and dangerous jobs that no one else will take in the host country. The spillover costs of migration are borne by the left behind wives, children, elderly, and siblings. Children in many families are brought up without mom and dad together.

Migrant workers are often disproportionately exposed to risk due to occupational segregation. Many, especially women, work in the informal sector or in occupations excluded from protections afforded by labor laws and regulations. The lack of protection is of special concern to housemaids and low skilled migrants. There are numerous instances where these workers are not properly paid for their services in addition to being sexually and physically abused.

Remittances are probably more inequality increasing or less inequality decreasing. Although the low-skilled individuals tend to come from lower income households, neither the poorest nor the richest migrate and remit. It is hard for the poorest to overcome barriers like high upfront migration costs, weak migrant networks, or incomplete information.

None of the above make a persuasive case against migration in general and unskilled migration in particular. The private returns far outweigh the risks. The policy stance needs to be much more nuanced to account for these realities. The negative socio-economic impacts (broken families, brain drain) warrant serious attention, but not through prevention of unskilled migration.

Zahid Hussain is former lead economist of World Bank Dhaka office.