Demographic Evolutions, Migration and Remittances Presentation by L Alan Winters, Director, Develeopment Research Group, The World Bank 1. G20 countries are at different stages of a major demographic transition. In advanced G20 countries, the aging process is well underway, and a number of emerging countries in East and Southeast Asia and central and Eastern Europe will also experience significant aging from 2020. In other developing countries, the demographic transition is less advanced, and working-age populations will increase in the coming decades. 2. Ageing is putting pressure on social programs especially health and pensions not only in rich countries, but also in many developing countries, which will start to grow old before they grow rich. This differential pace of ageing creates different challenges for developed and developing countries. In developed countries the working-age cohort (15-65) will peak at about 500 million in 2010 and decline to 475 million by 2025. The support ratio of elderly to working-age population will rise in Europe from 36 now to 52 by 2025 and to 60 in Japan. Developed countries are reforming their pension systems in preparation for the aging of their populations. Countries like India, on the other hand, are expected to remain relatively young for a substantial period of time. However, in addition to preparing for the ageing of the population, pension systems in developing countries must cope with the presence of a large informal sector that in many countries accounts for more than half the labor force, and where a significant portion of the people will be poor throughout their lives. 1 3. Combined with growing absolute differences in incomes per head between rich and poor nations, the demographic transition is likely to increase international migration beyond today s 180 million people (almost 3% of the world s population) who live outside their birth country. Moreover, differences in political stability and the rule of law also affect migration armed conflicts and ethnic persecution create both refugees and permanent migrants and these differences are also large and persistent. 4. By allowing people to move to areas where they are more productive, international migration increases world output and income to the potential benefit of both developed and developing countries. But it is not without its challenges, such as the so-called brain drain from developing countries, the problems of discrimination, and ensuring that temporary migration is actually temporary. A better understanding of the determinants and effects of migration and a dialogue on the issues and challenges it raises can both inform immediate choices, and set the stage for international cooperation and action. After years of neglect, including the failure to generate adequate data, research on migration is now starting to address these challenges, first by mapping and understanding them and then by testing rigorously policies to address them. 1 See Holzmann, Robert, Richard Hinz, and Bank team: Old-Age Income Support in the 21st Century: An International Perspective on Pension Systems and Reform World Bank 2005.
5. International migration can relieve some of the demographic and economic pressures; however, by itself it clearly will not be sufficient. The levels of migration needed to maintain current support ratios are far larger than could be accommodated economically and socially, or tolerated politically in destination countries. Migration is not a substitute for development, but rather must be seen as a tool to achieve it. Moreover, the aim is not just the development of countries per se, but the welfare of individuals and families. In particular, it is not just those who receive migrants or those whom the migrants leave behind that matter, but also the migrants themselves. They bear the principal risks and potentially reap the largest rewards, but are often ignored in policy discussion. Thus, for example, evidence suggests that Mexican families with migrants achieve better child health outcomes, lower child mortality and higher birth weights (although not better preventative practices) 2. Addressing the consequences of skilled labor migration 6. Migration entails the transfer of skills, and developed countries are now orienting their visa programs more strongly towards the skilled. Recent data show large increases in brain flows between 1990 and 2000; some small, poor countries have huge proportions of their tertiary-educated population abroad e.g., Jamaica (85%), Guyana (85%), The Gambia (65%), Somalia (59%), Fiji (59%) and Sri Lanka (28%). 3 7. The so-called brain drain is one of the least understood areas of migration. On one hand, an outflow of skilled workers reduces a country s productive potential, cutting its tax base, its entrepreneurial dynamism, the incomes of its less skilled workers and the general social and economic benefits of having a more educated population; and often after society has paid the costs of the migrants education. On the other hand, the possibility of migration may encourage people to acquire skills, and since some of these may not leave, could thereby increase a developing country s stock of skilled workers. In addition, a skilled diaspora can generate remittances, transfer technologies and facilitate integration and international trade; returnee migrants can bring back new skills and attitudes; and the skilled workers themselves will usually be more productive and better remunerated if they move to more productive economies. 8. The balance of these forces varies across countries depending partly on the relative productivities of skilled workers at home and abroad. At home, for example, it depends on whether the country makes good use of skilled labor or is large enough to achieve a critical mass of highly skilled workers without the emigrants. Abroad, the evidence shows that a higher stock of skilled immigrants boosts a US sector s patenting success, 4 but that some skilled immigrants to the USA do not acquire skilled jobs, especially those from poorer, smaller countries. 5 9. There is as yet not enough information to assess many extant policy suggestions on the brain drain, e.g., the merits of taxing skilled migration or trying to freeze developed country skilled labor recruitment. Before embarking on such policies, a good deal more research and analysis is required. 2 David McKenzie Beyond Remittances: The effects of migration on Mexican households,chapter 3 of Ozden and Schiff, ibid 3 Frédéric Docquier and Abdeslam Marfouk, Measuring the international mobility of skilled workers (1990-2000), Chapter 5 of Ozden and Schiff, ibid. 4 G. Chelleraj K.E. Maskus and A. Mattoo, 2004, Skilled Immigrants, Higher Education and U.S. Innovation, Chapter 8 in Caglar Ozden and Maurice Schiff, ibid. 5 Aaditya Mattoo, C. Neagu, and C. Ozden, 2004, Educated Migrants, Is there a Brain Waste?, Chapter 7 in Caglar Ozden and Maurice Schiff, ibid. 2
Enabling temporary migration, including of less-skilled workers 10. Temporary migration offers a means to reap some of the benefits of migration additional labor and skills, and higher incomes for workers without some of the challenges. For the host country it eases the strains of integration, while for the origin country, temporary migration reduces fears of permanent loss of talent, provides a re-flow of workers with wider experience and skills, and probably entails a larger inflow of foreign exchange than does permanent migration. 11. Even relatively small flows, equivalent to 3% of OECD countries work forces, could generate huge economic gains. 6 These would be shared between developed and developing countries and stem more from the movement of less-skilled than of more-skilled workers. The returns to finding ways to exploit this arbitrage in socially acceptable ways (including easing adjustment stresses for local unskilled workers) could be huge: consumers and other factors of production in recipient countries will gain via lower prices, increasing variety and greater productivity, while the migrants and the remittance recipients in poor supplying countries will get large increases in income. 12. Temporary migration is already subject to negotiation in the Doha Development Agenda (DDA) under the General Agreement on Trade in Services (so-called Mode 4 of the GATS). So far, however, very little progress has been made. 7 It may be that progress will be quicker with bilateral labor agreements, turning to the multilateral only later. 8 Key elements would include ensuring that mobility really is temporary, smoother visa processes, the portability of health and pension benefits, and the recognition of qualifications. There may also be scope for training developing country nationals to equip them for work in developed economies. Among temporary labor agreements that appear to work reasonably well currently are several for agricultural labor e.g. in the UK and for working holiday arrangements - e.g. in Australia. Enhancing global integration and social welfare 13. Migration is intimately connected with other aspects of global integration capital flows and international trade. Diasporas stimulate trade in both directions. North-South trade agreements can promote migration because they give poor potential migrants the means to finance mobility. 9 Preliminary analysis shows that outflows of US FDI from a specific sector to a specific country are significantly influenced by the existing share of employees in that sector from that country. 10 The robustness of these findings needs to be checked, but they suggest that migration to rich countries enhances developing countries other efforts at international integration. 6 L. A. Winters, T.L. Walmsley, Z. K. Wang, and R. Grynberg, 2002, Liberalising Labor Mobility under GATS", Economic Paper 53, Commonwealth Secretariat, London, and Global Economic Prospects, 2006. 7 L.A. Winters Developing Country Proposals for the Liberalization of Movements of Natural Services Suppliers, in U. Petersmann (ed) Reforming the World Trading System: Legitimacy, Efficiency and Democratic Governance, Oxford University Press, pp. 147-165. 8 L.A. Winters, Demographic Transition and the Temporary Mobility of Labor, paper for G20 Workshop on Demographic Challenges and Migration, Sydney, 27-28 August 2005. 9 Ramón E. López and Maurice Schiff, 1998, Migration and the Skill-Composition of the Labor Force: The Impact of Trade Liberalization in LDCs. Canadian Journal of Economics 31 (2):318-36. 10 Javorcik, Beata S., Ç. Özden, and M. Spatareanu, 2004, Substitutes or Complements? Linkages between Migration and FDI, draft. 3
14. Migration has direct impacts on the welfare of individuals and families. Migrants and their families may suffer long periods of separation, which may have long-term developmental consequences. Also, migrants suffer many privations in the process of integrating in their destination country. Seeking to alleviate these (via, for example, access to social protection, fair naturalization procedures and stamping out discrimination) is an important but sensitive area of domestic and cooperative international policy. 11 It is also one in which a careful assessment of policy effectiveness is necessary. 15. Migration is increasingly an international issue and migration policy presents huge challenges, including for the G20 countries, which account for almost two-thirds of the global population. Even if not all of the international community is ready for a multilateral approach to migration policy, much can be done cooperatively to generate comparable and more systematic data on migration, to promote research and understanding and to enhance the policy debate. National governments should not only promote a vigorous program of data collection, but also make their own administrative records for example on visa applicants available to researchers in a form that retains anonymity. Improving the Development Impact of Remittances 16. Remittances are the most direct way in which migration affects people remaining in developing countries. Developing countries recorded remittance receipts have risen from $31 billion in 1990 to over $160 billion in 2004. In some countries remittances are now the largest source of foreign currency. Some estimates suggest that remittances transferred through informal channels may add a further 50% to formal flows. 17. Remittances can aid development and poverty reduction. First, they may help smooth macroeconomic shocks and underpin some countries international borrowing. Second, where migration is extensive and relatively low cost for example, along familiar corridors such as Mexico-USA remittances flow to the poor, reducing poverty and equalizing opportunity and incomes. In Guatemala, remittances may have reduced the incidence of poverty by 20 percent. On the other hand, when migration is small-scale and costly, the evidence suggests that the poorest cannot move and hence that remittances are unequalizing. There is evidence that remittances support families investments e.g., in children s education, housing, health and thus future growth. Some argue, however, that they discourage work and that too high a level of remittances appreciates the currency and constrains other tradable sectors. 18. Governments in both destination and origin countries have several tools to enhance remittance flows. They could improve the access of poor migrants (and their families in origin countries) to financial services, e.g. by expanding the banking network and providing identification cards to migrants. They could increase competition in the remittance transfer market to lower fees by lowering capital requirements on remittance services, and opening up postal, banking and retail networks to partnerships (without exclusive contracts) with remittance agencies. Destination countries could even increase the number of immigrants. 19. Policies that attempt to stimulate flows and channel them to more productive uses are more problematic, however. Tax incentives to attract remittance inflows may also encourage tax evasion, matching fund programs to attract remittances from migrant associations may divert 11 See Holzmann, Robert and Rainer Muenz. 2004. Challenges and Opportunities of International Migration for the EU, Its Member States, Neighboring Countries and Regions. Stockholm (Institute for Futures Studies). 4
funds from other local funding priorities, and efforts to channel remittances to investment have met with little success. Fundamentally, remittances are private funds that should be treated like other sources of household income. Efforts to influence their use should be accomplished through improvements in the overall investment climate, rather than targeting remittances per se. Similarly, as remittances are private funds, they should not be seen as a substitute for official development aid. 5