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Equal pay for equal work for migrant workers?

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The recent negotiations between Philippines and Saudi Arabia about the minimum living wages for migrant workers have resulted in a stalemate. Philippines is demanding a minimum wage of $400 per month for its workers, while Saudi Arabia is willing to stipulate a minimum wage of $200 per month. Saudi Arabia stopped processing contracts of Filipino workers in March, recently the Philippines has said that it will not send Filipino maids to Saudi Arabia until the dispute is resolved. Saudi Arabia hosts 1.2 million Filipino migrants and accounts for nearly 300,000 overseas deployments annually, while the Philippines receives $1.5 billion annually in remittances from Saudi Arabia. Thus, this wage dispute could lead to loss of employment opportunities for Filipinos, involve cost of reintegrating returning workers, and a reduction in remittance flows -- all of which could adversely impact the Philippine economy.  

The minimum wage demanded by the Philippines government is a quarter of the average gross national income (GNI) per capita of Saudi Arabia, but higher than the average GNI per capita in the Philippines. The minimum wage that Saudi Arabia is willing to offer to migrant workers is just two-fifth of the income of a person at the poverty line in the United States (based on annual income for a family of four ) and almost a tenth of the minimum wage in New York state.    

In the past, Saudi Arabia's labor minister has opined that Saudi Arabia's wages in the private sector were "a shame". These were linked to the presence of several million migrant workers willing to work for a low wage and also a reason for unemployment of a quarter million Saudi males, who presumably have a higher "reservation wage". Saudi Arabia is one of the few countries that does not have any minimum wages.

However, when markets are imperfect or segmented, there could be a role of minimum wages. Unskilled migrants from developing countries in the Gulf appear to be willing to work for far less than the average wages in a typical high income country, and at wages comparable to, or slightly higher, than their own countries’ incomes.

The market for unskilled international migrant workers may be characterized by the models of Arthur Lewis where a rural sector exists with an unlimited supply of labor willing to work for a low wage that is comparable to the wages in the rural sector. This plentiful supply of labor keeps the prevailing wage for migrants low in the destination regions. 

There is another view which considers the concept of a “living wage” sufficient to provide a certain standard of living for the workers. However, this concept is subjective and subject to similar criticism as minimum wage - whether it could include just nutritional requirements, rent, living expenses, children's education etc.

Some questions for discussion:

1. Should there be a minimum wage for migrant workers on the basis of commonly accepted minimum standard of living?

2. Should the minimum wage for migrants be the same as for natives? 

3. Will imposing a minimum wage that is higher than the currently prevailing wage reduce the demand for migrant workers and reduce remittance flows?


Sanket Mohapatra

Associate Professor, IIM Ahmedabad

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