THE ECONOMICS AND POLITICS OF OVERSEAS MIGRATION IN THE PHILIPPINES by DR. FERNANDO T. ALDABA Paper presented at the forum titled Overseas Filipinos and the 2004 Elections 19 March 2004 – Manila Pavilion Organized by the OFW Journalism Consortium and the Friedrich Ebert Stiftung   1. Introduction Earlier this week, in the front pages of the Daily Inquirer, the doctor who topped the board exam admitted planning to go to the United States to practice as a nurse. He rationalized his decision saying, “It is now time to serve myself!” We cannot fault this twenty eight year old for thinking about survival in a highly competitive world. We can easily surmise that despite being overqualified as a nurse in the US, his salary there will probably be eight to ten times more than what he would get in his first job here in the Philippines. From an economist’s perspective, this young fellow is simply maximizing the possible returns from his investments in what we term as “human capital” i.e. the training and education he received. His decision is very rational indeed from an individual point of view. But from a society’s point of view - is this also rational? Multiplying his case many times more not only for doctors but also for teachers, software programmers and engineers, we will really be quite alarmed. The exodus of our skilled workers to seek greener pastures abroad continues unabated. Figures in table 1 will show this. Can this really be sustained? From an economic viewpoint, we can easily justify overseas migration as long as its social benefits outweigh its social costs. Let us do a simple analysis of the social benefits and costs of migration.    Related Information

2. The Benefits of Migration

From a microeconomic perspective, exploiting a wage differential clearly benefits the individual or a household member who decides to migrate. Studies have been conducted on the positive impact of migration in terms of increased incomes and assets on the households. We have plenty of anecdotes depicting a whole barangay, formerly of relatively poor households now living comfortably with concrete houses because of the fruits of overseas work. At the macro level government has hailed overseas workers as our current day heroes for they have brought in the needed foreign exchange and the increased expenditures that enhance economic growth of the country. Imagine how these opportunities in foreign labor markets have eased the unemployment problem within our shores. Aside from the incomes that Overseas Contract Workers (OCWs) bring in, they can also “market” the Philippines as a tourist destination. Dick Gordon was right when he said that if only each of the 7-8 million OCWs would invite one foreigner to visit the country, this would be a great boost to Philippine tourism. This network of Philippine migrant workers all over the world can be harnessed towards building a better image of the country.

In terms of current statistics, the number of deployed OCWs has increased by almost 25 times over the past twenty-eight years (see Table 1). By 2002, the number of OCWs deployed per year has already contributed almost 3% of the total employment in the country. The most recent official estimates placed the stock of overseas Filipino workers at seven to eight million. This is already about 25% of the total labor force and 10% of the total population in the country today. But more importantly, the remittances of OCWs have reached almost a fifth of our total exports and have contributed almost 1/12 of our gross national product. Remittance per worker deployed in 2002 has reached almost US$ 8,000.00 up from only US$2,900.00 in 1975. Projected remittance this year is already at the US$ 7.5 billion level. It is also very interesting to see that during the crisis years, 1997-1999 remittances actually increased as families in the Philippines had to rely on their relatives from abroad for support and as a form of social protection. These remittances comprise the bulk of private transfers to various households in the economy. However studies have shown that these are typically used for consumption and asset acquisition only, not for real and productive investments.

 

Table 1.  Overseas Employment and Its Contribution to Output

Source: Soriano and Imperial (2001), Author’s own computations

3. The Social Costs of Migration

Let me turn to the social costs of migration. As skilled workers seek higher returns in foreign countries with supply constraints, the social costs of continued migration affect the sustainable growth of the economy. These include the inability of the economy to replace the productivity of the experienced and skilled workers who have temporarily or permanently migrated with that of new recruits. Certain occupations require a number of years experience to reach peaks of productivity. If the country is not able to produce replacement workers at the same rate as the exit of current workers to foreign markets, shortages will definitely occur. These shortages in supply especially of skilled labor will clearly affect the growth potential of the country unless return migration occurs in the medium run . In addition, overseas migration also increases the losses in human capital investments as the overseas workers bring with them investments in health, education and nutrition. This is exacerbated when workers decide to permanently stay in the host countries. Social capital also deteriorates as families become dysfunctional in the cases where the father and/or the mother work abroad for many years leaving their young children in the care of relatives. Eventually these human and social capital costs translate into lower labor productivity for those who are left to work inside the country.

The major effect on the labor market of continued outward migration can be summarized in the term “brain drain”. This continued departure of skilled workers in the economy reduces over-all productivity. It is similar to reducing the number of machines or equipments used in the economy. Or better still reverting back to old technologies in your production processes. This “brain drain” also affects investments as capital will only flow in economies with perceived adequate supply of skilled labor in key sectors. The supply of human capital is definitely one major determinant of foreign direct investments. Examining closely (see Table 2) the profile of OCWs deployed in terms of educational attainment, around 40% have reached the college level. Note that in the domestic scene, only around 20% of those employed have college degrees. This would mean that many of these skilled workers who suffer very high unemployment rates within the country opted to use their acquired skills in foreign shores. Note that college graduates have the highest unemployment rates in the country today. Alburo and Abella (2002) also have noted this highly educated characteristic of the OCWs.

Table 2.  Educational Level  of  OCWs , Migrants and Local Workforce (1995)

Source: Yearbook of Labor Statistics, 1995; Aldaba (2000)

During the past several years, there has also been an increasing feminization of overseas employment wherein almost half of the OCWs are women.  Service workers, production and related workers and seafarers account for the bulk of total OFWs over the past 30 years.  Engineers and nurses dominate the professional group (Sardana, 1998).

There is also a recent study that contends that overseas migration creates a “moral hazard” problem (Chami, Fullenkamp and Jahjah 2003).  In economics, this means that an economic agent becomes “careless or negligent” if there is assurance of support or subsidy during periods of risk and uncertainty.  For example, car insurance will probably change the behavior of the driver in the sense that he will become more aggressive in driving.  In the case of public firms, as long as their operations are subsidized by government, they can get away with bad governance.  Remittances of OCWs may create wrong incentives arising from this “moral hazard problem”. Households become too dependent on them as family members reduce work effort or cut search time for productive jobs in the domestic labor market.  At the macro-level, government ignores economic imbalances (e.g. trade deficits) and fails to pursue needed economic reforms as it anticipates getting a big slice of dollar remittances every year from migrant workers.  They might even “pursue politically beneficial but economically unwise policies” as long as remittances insulate the economy from the negative impact of these policies.  With the way politics is being practiced in the Philippines, this is simply not far fetched.

            The problem with doing social cost-benefit analysis is that sometimes it is very difficult to quantify social costs. In the case of migration this is probably true as social and human capital are not easily quantified.   However, one notes, that social benefits are more immediate and are very concrete, tangible and easily measured.  More recently, prominent tycoons have emphasized these positive contributions of overseas work to the over-all development of the nation.  This however could give us a false sense of security that now and in the future, the social benefits of overseas migration outweigh its social costs.  The social costs may not be felt immediately but may only be manifested in the medium and long run. In addition, this may lead us to implement inadequate or incorrect policies to respond to this growing phenomenon.

4.  Elections, Government Policies and Migration

Should we then put a stop to this overseas migration given its harmful effects? Everybody will jump on me and say, do we really have a choice! Of course, people will continue to leave the country. This is the so-called “voting by the feet”.  People go abroad not only because of the pull factors (e.g. greater opportunities abroad) but also because of the push factors – bad governance, corruption, criminality and lack of economic opportunities at home.  More often than not if given a choice most of our temporary migrants would want to settle permanently abroad......a complete brain drain.  A recent survey has actually confirmed this desire of Filipinos to go and work abroad.  But who can afford to leave the country and settle abroad...the relatively more educated and skilled workers.  There are also costs constraints to migration.  A worker cannot migrate if he or she does not have the resources to do so.  There are application, travel (passport, visa and airfares), and settling costs.  It will be good if the future employers take care of these expenditures but in most cases a worker needs to advance his own money.  Only those who have access to credit or those who have assets that can be liquidated can actually surpass this cost constraint.

But what does it mean when educated and skilled people get out of the country to work in a far away land?  Economically, we already spoke about the losses in human and social capital of overseas migration.  But there is also a “political loss”.  Studies have shown that relatively more educated people vote more wisely.  Voting in a sense is a function of the ability to process information about candidates. With the quality of our education continuing to deteriorate and with our educated people leaving the country, it is no wonder that only “popular” candidates though not qualified are elected in office.  Thus, the quality of our electorate has also been deteriorating over the years as our more educated workforce leave the country.  The absentee voting law was a step in the right direction but still only very few are registered – a mere 360,000-plus according to the latest figure compiled by Newsbreak Magazine from the COMELEC.   It is no wonder that traditional politicians now rely on these popular candidates to continue holding on to power and robbing the country of its future.  Migrant workers need to be included in our democratic processes - not only because they have contributed much to the country’s economy but because presumably, they will also vote more wisely.

Government policy at present recognizes the role of overseas workers as key actors in nation building.  To quote Secretary Patricia Sto. Tomas, “As a strategy for labor migration management, the government shall explore and develop better and more markets for overseas employment. It shall ensure that OFWs are at par with, if not superior, to their foreign counterparts and through the DOLE necessary technical education and training will be implemented.”  I have no quarrel with making our workers competitive in the global market but there is a trade-off in being too much focused on external labor markets.  If we put so much resources to promoting overseas employment, necessarily, we are reducing resources for other activities.  This is good if we always have excess supply of human capital in the country.  But if the increased rate of exit depletes our supply of critical human capital like doctors, nurses and teachers, even the formation of future human capital is jeopardized.   Sadly, the best quality workers are the ones actually leaving.  Government has to realize that aside from further enhancing the quality of our labor supply to make them more competitive, it now has to deal with possible supply shortages in certain strategic occupations. 

Resources from overseas migration must be utilized for the protection of our workers abroad.  But aside from this, they must be transformed to strengthen the domestic economy.  In particular, government has to find ways of “converting” worker remittances and savings into more productive investments so that more jobs can be created within the country. And it also has to ensure the continuous production of human capital not only geared towards the outside market but also geared towards a more dynamic economy that will produce goods for the domestic and foreign markets.   As I mentioned in a previous paper, overseas migration is probably a necessary strategy in the short and medium run but it should not be a permanent one.  When our domestic economy begins to grow at higher rates with the help of “transformed worker remittances”, then it is hoped that return migration, or what Alburo (1993) calls a “turning point”, will occur as what has happened in South Korea, Thailand and Malaysia. Government must continue with economic reforms to attract more domestic and foreign investments, to make our non-human exports become more competitive and to provide better infrastructure, improve research and development efforts, etc.   The management of labor migration, while a necessary component, must only be subordinated to a strategy that will create a more competitive Philippine economy in both the production of goods and services.  It will really be the maintenance and prospects of a high growth and well- developed economy that will attract our skilled workers back to our shores.  As we always say, “there is no place like home!”

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