Population

Migration matters: the race to ensure a future supply of workers in Asia

Migration-MattersWhile there has been strong promotion of free global trade in goods and services as well as in capital inputs, the case has not been made so forcefully for increasing the international mobility of the other factor of production, labor. A recent article in The Economist, Free Exchange—Border Follies, surveys the latest research on the potential benefits of increasing international labor migration (The Economist 17 November 2012). The estimates are staggering, with possible increases in world output and income ranging from 30% to 100% (amounting to an additional $20 trillion to $70 trillion) depending on the level of migration assumed. These calculations swamp the potential benefits of increasing international trade, which is estimated to be less than 3% of global output. The research shows that the gains come from migration-induced productivity increases in the host country and the additional incomes are more than sufficient to compensate for any adverse effects, for example, if wages for some host country workers fall in the short term. Remittances (worth around $300 billion a year) are also sent to the migrant source countries to compensate those who stay behind.

However, another important factor needs to be considered as a matter of urgency. Our recent Asian Development Bank Institute (ADBI) working paper, Demographics, Labor Mobility, and Productivity, argues that the emerging demographic imbalances arising from projected aging populations will significantly increase the number of dependent-aged in the world (Wilson, Jayanthakumaran and Verma 2012). This major development will have considerable economic, social, and political consequences. By 2030, there will be around 50 people age 65 and over in Germany and Japan for every 100 working age people (15 to 64 years of age), according to a United Nations report (United Nations Department of Economic and Social Affairs 2011). Indeed, all of the traditional labor-importing developed countries will experience significant increases in these dependency rates by 2030.

The article in The Economist identifies the opportunity cost in terms of potential productivity gains and increases in output and incomes from international migration not being realized. Developed countries will have no option but to make up for the expected shortfall of people of working age by accepting skilled and semiskilled migrant workers, mostly from the populous developing countries in Asia.

Our ADBI paper argues that this raises another serious issue in that there may not be enough migrants from Asia to supply the developed countries with their future labor needs. The dependency rate for Asia is expected to almost double to nearly 30% by 2030 with the highly populated People’s Republic of China’s (PRC) rate forecast to increase to around 40%. (India is much better placed with its dependency rate expected to increase to less than 20%). We calculate the hypothetical population changes required for the selected Asian countries to age at the same rate. The estimates are alarming; for example the PRC and Japan would have a shortage of nearly 400 million workers by 2030, with India, Indonesia and the Philippines being the main sources of potential migrants.

Migration within the Asian region is larger than most people realize. The UN DESA (2012) report shows that of all international migrants born in Asia, the majority, 56%, were residing in Asia in 2010, with only 23% residing in Europe and 17% in North America. Asia also absorbs the majority, 69%, of all the world’s refugees (United Nations Department of Economic and Social Affairs 2012). Indeed, much of this Asian migration consists of labor market “churning” in the form of temporary, seasonal, and cyclical migration of skilled, semiskilled and unskilled workers in Asia. This “circular” migration is greatly supplemented by the very large number of internal (within country) migrants. The 2009 Human Development Report estimates that nearly 75 million people in the PRC and more than 40 million in India are internal migrants (UNDP 2010). They also comprise sizeable proportions of other populations; more than 20% for Malaysia and Viet Nam, and more than 10% for Cambodia and the Philippines. These numbers are minimums because most internal migrations and many temporary cross border movements are informal and therefore mostly undocumented.

As the center of gravity for global trade and influence shifts from the North Atlantic to Asia, the potential for regional migration to spread the aging burden within Asia is clear. However there has only been modest formal liberalization of labor mobility in Asia, despite the 1995 multilateral ASEAN Framework Agreement on Services. The ESCAP 2012 Trade and Investment Report argues this is consistent with the lack of comprehensive and detailed consideration of migration by multilateral agreements, for example the General Agreements on Trade in Services. While preferential bilateral trade agreements allow country-specific migration factors to be included, progress has been slow in Asia, particularly in promoting full market access to migrant workers. Rather, the agreements typically accommodate mostly temporary movements of skilled workers. The roles of governments are crucial to develop and implement policies to facilitate migration of workers. There has been success with the Republic of Korea Employment Permit System, which organizes workers’ entry processes to protect them through relevant domestic labor standards, minimum wages, and industrial health and safety acts. The Japan Times cites another homogeneous country; Japan is currently formulating official migration policies along similar lines (The Japan Times 2012).

There is much to be done in Asia and the experiences of countries like France and the United Kingdom in the European Union and the United States in NAFTA provide lessons on how to successfully and peacefully absorb migrants from developing countries. Asia needs to handle not only the regulation of international migration but also its effects on increasing ethnic diversity. Migration-related social issues such as human trafficking and abuse of migrants also need to be addressed in traditionally homogeneous countries. The proposed ASEAN Economic Community, to start in 2015, is a good framework, and the Mutual Recognition Arrangements work classifications is a good start, although this needs to be extended to less skilled workers. These developments would help facilitate the allocation of human resources in the region.

However, our paper argues that this potential for increased regional migration within Asia will constrain the future supply of migrants to developed countries. We question the assumption by policymakers, mostly in developed countries, that there will be enough workers who will permanently migrate to satisfy the developed countries’ future labor supply needs.

Certainly, major efficiency benefits are to be gained for countries that boost labor migrant intakes. But it is not just a question of efficiency; we also argue that “increasing the mobility of humans is the best way to provide freedom and significant improvements in their wellbeing and quality of life.” The global race for food and energy security will also include the race to ensure future supplies of workers to overcome the looming aging of populations, a phenomenon never experienced in recorded human existence.

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References:

The Economist. 2012. Border Follies: Liberalising Migration Could Deliver a Huge Boost to Global Output. 17 November.

The Japan Times. 2012. Formulating Immigration Policy, No Seat at the Table for Non-Japanese. 3 July. www.japantimes.co.jp/text/fl20120703ad.html

United Nations Department of Economic and Social Affairs (UNDESA). 2011. World Population Prospects: The 2010 Revision. New York.

United Nations Department of Economic and Social Affairs (UNDESA). 2012. Migrants by Origin and Destination: The Role of South-South Migration. Population Facts. New York.

United Nations Development Programme (UNDP). Human Development Report 2009. Overcoming Barriers: Human Mobility and Development. New York.

United Nations Economic and Social Commission for Asia and the Pacific (ESCAP). Asia-Pacific Trade and Investment Report 2012. Bangkok.

Wilson, E., K. Jayanthakumaran and R. Verma. 2012. Demographics, Labour Mobility, and Productivity. ADBI Working Paper Series. No. 387. Tokyo: Asian Development Bank Institute.

Kankesu Jayanthakumaran

About the Author

Kankesu Jayanthakumaran is a senior lecturer in the School of Economics at the University of Wollongong, Australia. His research interests are international trade liberalization and performance (manufacturing, environment, wages, income inequality and migration) in Asia and Australia. He has a PhD from the University of Bradford, United Kingdom.
Reetu Verma

About the Author

Reetu Verma is a senior lecturer in the School of Economics and sub-dean at the University of Wollongong, Australia. Her research interests are economic modeling, applied econometrics, economic growth and development in Asia. Her research has concentrated on gender differences in the workplace, sustainability of trade deficit in the South Asian countries and international migration, wage inequality and labor mobility.
Ed Wilson

About the Author

Ed Wilson has been president of the Economic Society of Australia, NSW for the last five years and is associate professor at the University of Wollongong, Australia. His research interests are in macroeconomic modeling and empirically estimating the determinants of economic growth and productivity and the consequences of policies to reduce poverty in Asia.
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