Labor mobility

The author is coordinator and member of the Management Collective of Action for Economic Reforms, a policy research and advocacy nongovernmental organization focused on macroeconomic policy and governance issues.

It is now a cliche to say that overseas Filipino workers (OFWs)
contribute significantly to the Philippine economy. That such statement
has become a cliche, however, does not diminish but only underscores
the OFWs’ role in the Philippine economy.

A look at the data easily bears this out. Official statistics show that
OFW remittance through formal channels amounted to $5.272 billion in
2001. This amount was equivalent to 6.9% of the 2001 gross national
product (computed by using the average exchange rate of the Bangko
Sentral ng Pilipinas in buying dollars). The total amount of OFW
remittances in 2001 was also more than half (57%) of government
consumption. Likewise, said amount of OFW remittance was nearly half
(48 percent) of the agriculture and fishery contribution to national
output. It is a credible estimate that the total amount of OFWs
remittance would reach between $8 billion and $10 billion, if the
computation included transfers through informal means.

Arguably, labor migration’s greatest impact is on employment; it has
alleviated the country’s serious unemployment and underemployment
problem, which taken together accounts for a fourth of the total work
force. According to the Commission on Filipinos Overseas, the total
number of overseas Filipinos was 7.41 million as of December 2001. OFWs
constituted 41% (3.05 million) of the total. There were 2.74 million
permanent residents, and the rest (1.62 million) was made up of
undocumented overseas Filipinos. OFWs outnumber the employed persons in
major industries including 1) manufacturing; 2) construction; 3)
transport, storage and communication; 4) public administration and
defense, compulsory social security; and 5) education. Only in two
industrial categories, namely: 1) agriculture, hunting and forestry and
2) wholesale and retail, repair of motor vehicles, motorcycles and
personal household goods do the employed workers exceed the number of
OFWs.

The number of processed and deployed OFWs steadily increased from 1990
to 2001. In 1990, the number of processed OFWs was 598,769, and in
2001, the number of processed OFWs, based on preliminary estimates,
reached 760,985. In terms of deployment, 446,095 OFWs were deployed in
1990. In 2001, the number increased by almost two-fold (866,590
deployed OFWs).

Notwithstanding the immense contributions of OFWs to the Philippine
economy, the predominant view among many development workers in civil
society, including those working in OFW organizations, is that labor
migration is an artificial solution to the country’s economic woes.
Take this statement from a nongovernmental organization that deals with
issues concerning OFWs: “Since 1975, OFWs were used as a solution to
address the series of economic crises.” Similarly, the government is
being criticized for its deliberate policy to export labor. This
criticism is valid insofar as the government treats OFWs as mere
instruments to buoy up the economy at the same time that it becomes
complacent in pushing for the hard reforms that address the underlying
causes of Philippine underdevelopment.

It is likewise disturbing that the deployment of Filipino workers has
led to negative social consequences especially in relation to the
family -physical separation, broken marriages, neglect of children, etc.

Despite this, one must not jump into the conclusion that labor
migration is an artificial or a “quick-fix” solution. Even as we
acknowledge the problems arising from labor migration, we need to
highlight the benefits that can be gained from it.

More to the point, the maximum benefits from the movement of workers
abroad have yet to be realized. The common view is that OFWs shore up a
weak economy. What has been overlooked, however, is how labor migration
can help put in place long-term growth and development.

There is unanimity in policy formulation and public opinion that the
Philippines must sustain higher levels of investments and growth over a
long period. The correlation between sustained growth on the one hand
and job creation and poverty reduction on the other hand is firmly
established.

In this regard, labor migration is an advantage for a poor or
developing country like the Philippines towards deriving maximum
economic benefits in conjunction with its implementation of an
appropriate growth and development strategy. To put it another way, a
development-oriented labor migration policy can be designed to
supplement a national reform agenda that will catalyze growth.

Labor migration cannot be the basis of a national development strategy,
but it can be a component in the pursuit of the strategy.

To reiterate, the Philippines, as well as other developing countries
with a big number of overseas workers, have yet to capture the largest
possible economic gains from labor migration. Dani Rodrik in Feasible
Globalizations (2002) even argues that the possible gains from all
those World Trade Organization (WTO) negotiations (e.g., market access
for exports of developing countries, removal of agricultural subsidies
by rich countries, etc.) in the so-called development round would pale
in comparison to the potential gains from the international movement of
labor.

A basic economics principle explains this: the larger the price
differentials of goods or services across national markets, the much
larger in exponential terms are the income gains from international
trade. Technically, this is formulated as follows: income gains from
international trade increasing with the square of the price
differentials. In Rodrik’s estimate, the price differentials for goods
and financial assets have narrowed to a ratio of 2-to-1 as a result of
liberalization.

However, in relation to labor services, Rodrik estimates that the wages
of workers for the same jobs in the highest-income countries and
low-income countries can differ by a factor of 10 or even more. (Note
that more than 60% of overseas Filipinos are located in the highly
advanced economies in North America, Europe, Japan, and Australia. They
have much to gain from the wide differentials even if the ratio in the
case of some rich countries vis-a-vis the Philippines would be less
than 10 to 1. As an illustration, the nonagriculture minimum wage in
Metro Manila is equivalent to $5.23 for an eight-hour working day
compared to the federal minimum wage of $42.20 for an eight-hour
working day in the US.) To apply the formula above, the benefits to
poor countries from labor mobility can be 25 times larger than what can
be obtained from the mobility of goods and capital.

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