GRM 2010 GRM 2011

Abstract Details

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Title of Paper:
High Migration Costs for the Low-Skilled: A Review of Recent Evidence and Implications for Policy
Paper Proposal Text :
There are inherent costs in job search which workers pay whether employed at home or abroad. Job-seekers need to travel and spend time to find job vacancies, undergo tests of their skills as well as their physical fitness, secure some official evidence attesting to their good citizenship, and in some instances hire the services of job agents. These “transaction costs” tend to be minimal in finding jobs at home but tend to be very high when one seeks work in another country. This paper examines evidence on these transaction costs which we refer to as migration costs paid by workers. We draw on data sets on some 21 important migration corridors obtained through surveys, commissioned by the World Bank and the ILO to provide insights into how migration costs can be reduced, especially through policy interventions. Theory suggests that conditions of excess supply of labour (many workers chasing after a few jobs) are a big part of the explanation. Since available jobs, especially for the low-skilled, are much fewer than the number of job-seekers, the market is cleared when employers or their agents extort higher fees for work permit, which effectively means workers accepting lower wages than what are stated in their contracts. Asymmetry in the information available to workers and employers contribute to the phenomenon. Employers will tend to minimize the risk of recruiting foreign workers with unknown skills, while workers unfamiliar with working and living conditions abroad may overestimate the actual value of wage offers. This paper reviews the evidence for insights into why workers appear to be willing to incur what seems to be excessive costs to migrate. It reviews the differences among corridors and looks at some features of policy interventions used by governments for clues into how such costs may be reduced.