Managing Migration: Recruitment

Philip Martin: plmartin@ucdavis.edu

June 7, 2013

Highlights 1

• Migration has costs: financial, opportunity, & social

• Int’l conventions: employers should pay all financial costs of recruitment. But S & D mean:

– Employers often pay recruit costs for high-skilled

– Many low-skilled workers pay their recruitment costs

• Wage wedge between COO & COD helps to determine how much workers pay

– Usual maximum: 1 month’s foreign earnings, 4.2% of earnings on 2-year contract, 2.8% on 3-year

– But: migrants can pay 30-35% of foreign earnings, = 1 year of 3 years’ foreign earnings

Highlights 2

• Governments influence recruitment costs:

• Direct: charges for passports, criminal checks, etc

• Indirect: regulate private recruiters; agreements with receiving countries (what role for ES)

• Top-down & bottom-up policies to lower recruit costs:

• Top-down: (1) employers pay, (2) govt offers incentives for good recruiter behavior in addition to penalties on bad behavior; (3) subsidies to get multinationals involved & speed use of standard contracts & achieve econ of scale?

• Post 2015 goal: cut recruitment costs in half in a decade

• Overall: link govt investment in migration mgt to remittances? POEA: 285 mil pesos ($7 mil). If POEA = 1/10 of 1% of $24 billion remittances, Phil spending on POEA would triple to $24 million; $400 billion remittances to ldcs = $400 million

Gallup 2009-10: 1/7 of adults want to emigrate & settle in

another country; 1/12 plan to move in 12 months

Migrants: Seek higher wages, more opportunities

• Wage wedge stimulates migration: how should it be shared between:

• Workers who get higher wages

• Employers who get work done cheaper than the alternatives

• Recruiters & the migration industry that take some of the wage wedge for matching workers with jobs, navigating bureaucracies, and moving them over borders

• Governments take some of the wage wedge in fees, taxes etc (what balance between protection and taxes?)

Matching workers and jobs is hard

• Asymmetric information:

• Employers know more about the jobs they offer

• Workers know more about their abilities

• Theories of employer screening and worker signaling

• Recruitment within borders:

• Employers advertise, job fairs, social networks: little use of ES

• Workers read ads & use networks to find jobs: little use of ES

• Recruitment over borders:

• For-profit recruiters: employers pay most fees for high-skilled, but low-skilled workers pay their recruitment costs

• Why do low-skilled pay? More workers than jobs

• Best protection for migrants: the ability to say NO to a bad job offer or a high recruitment charge (having good alternatives)

Wage gap or wedge influences recruiter fees

• Wage gaps are often 8 : 1—earn more in an hour abroad than in a day at home

• Sharing the wage gap between recruiters, governments, and workers

• What WILL workers pay? More than the $0 specified in ILO conventions or the 3-5% of foreign earnings maximum set by many migrant-sending govts

• Many roles of recruiters:

• Provide information and advice to job seekers

• Screen workers, fill job orders, and deploy (accompany) workers abroad

• Supervise workers abroad

Foreign Job Offers & Migrant Workers

• Employer receives permission to recruit & employ a foreign worker to fill a job (What labor market tests for local workers? What wages? certification vs attestation)

• Job offer is transmitted by employer or recruiter in COD to recruiter in COO • Most recruiters are in COO capital city; many low-skilled migrants are in

rural areas

• Agents find workers, bring them to recruiters, help them to navigate bureaucracy (financial and opp costs; subagents = piece rate pay)

• Govt approval of contract, pre-departure training etc

• Worker leaves COO for employment in COD

• Still same job & contract terms? Did worker understand the contract? Remember—workers may make several transitions: rural-urban, traditional-modern etc = many opportunities for mis-understandings

Government Regulation of Recruiters

• Require recruiters to identify themselves: register, pass tests & post bonds to get licenses; join association. Can foreign employers recruit directly, or must they use recruiters who are citizens of COO to recruit?

• Educate migrants about their rights & max recruitment fees, check the contracts offered to migrants, provide pre-departure training etc

• Govt agency monopolies OR govt compete with private recruiters? N.B. the only way to go to Korea is under G-to-G MOU; new Bangladesh-Malaysia G-to-G MOU drew protests from recruiters

• Workers may pay more to jump the queue; “victimless crime” if worker gets what he wants—foreign job

WHO moves workers over borders? What costs, and who pays?

Remittances vs Recruitment

• Reduce cost of sending small sums via regulated financial institutions after 9/11. Global: average cost of sending $300 dropped from 15% or $45 in 2000 to 10% or $30 between in 2010. WB’s 5 x 5 program

• Remittance transactions: standard & frequent (1 or 2x/month), consequences of bad outcomes = lost money

• Recruitment transactions: less frequent, consequences of bad outcomes = debt peonage, trafficking victim

• Big potential savings:

• Typical Bangla worker in GCC: earn $200/mon or $7,200-3 yrs

• Remit $5,000—reduce remittance costs in half, from 10% to 5%, & save $250 over 3 years

• Recruitment cost $2,000: reduce in half and save $1,000

Moving Forward: 3 Big Ideas

• Improve the data base:

• National teams to document costs—financial and opportunity—in various migration corridors

• Where do recruitment problems & costs appear? Regulations respond to abuse—which regs satisfy B/C test?

• What incentives to induce good recruiter behavior (faster processing, lower fees etc?)

• Would subsidies to multinational recruiters (1) speed use of standard contracts and (2) achieve econ of scale? (like cities subsidizing low-cost airlines to lower airfares)

• Goal: Reduce recruitment costs by half by 2020 or 2025?

– Each 1 million migrants paying an average $1,000 = $1 billion

– Reduce by half means $500 million more for migrants & devel

POEA: $8 million a year budget, 1.7 million OFWs

Bangladesh: lend up to 84,000 taka ($1,075) at 9% to migrants

using OWWA funds; (1,700 loans made April 2011-April 2013)

Mordechai Orian: indicted for trafficking

Thai H-2A workers in 2010; case

dismissed in 2012