Ask most people to name the most effective means of raising incomes of people in poor countries, and what would they say?
Deworming? It increased primary school participation and improved health, but in the short-term at least seems unlikely to raise household income.
Conditional cash transfers? This might be a popular answer, with evidence from a number of countries that they have increased household expenditure , schooling, and health outcomes. But even though Governments devote significant resources to such programs, the absolute annual increases in household income and expenditure are still at most US$20-40 per capita for participating households.
I bet that facilitating international migration is not very high up the list of interventions people think of. But it should be. In a new working paper, John Gibson and I evaluate the development impacts of New Zealand’s new seasonal worker program, the RSE. The figure below compares the per-capita income gain we estimate to those from microfinance, CCTs, and from my previous research giving grants of $100-200 to microenterprises. It is simply no contest!
In addition to estimating per-capita income gains of 30-40%, we find that participating in the RSE leads to greater subjective well-being, more durable asset purchases, housing improvements, and in Tonga, a large increase in secondary schooling. Moreover, as a recent evaluation by New Zealand’s labor department found, these gains came with minimal displacement of native workers, and overstay rates of less than 1%.
However, despite the vast gaps in income between developed and developing countries, such gains do not come automatically. The latest Nobel prize in economics was for work on the process of job search and matching in labor markets. While these are difficult enough for workers in the same economy, matching the supply of willing workers to the demands of employers becomes even more difficult when the process takes place across borders. There is thus an important role for Governments and international organizations in initiating, catalyzing, and promoting these new labor markets, as I discuss in our latest Finance & PSD Impact note.
Such programs are likely to be particularly important in thinking about development strategies for small island nations, in which the scope for large scale industrial development is very limited. There certainly seems scope for thinking about how to apply such programs to more countries.
A friendly summary of the paper is contained in this Vox posting.
The full working paper is now available in the World Bank Policy Research Working Paper series.
Spurring Development through a Seasonal Migration program, Finance & PSD Impact Note No. 12