Reducing Migration Costs

Qatari labor law prohibits recruitment agents from charging migrant workers “any sums representing recruitment fees or expenses or any other costs.” Most high-skilled migrant workers do not pay recruitment fees, but many low-skilled migrant workers do. A Sri Lankan paid $1,092 to get a job in Qatar, and a Bangladeshi paid $3,651 for a construction job, of which wage can be some $200-300 per month, according to Human Right Watch (2012).

One can say that perhaps such payments are inevitable given that supply is far greater than demand in the world’s low-skilled labor market. Every year millions of workers leave one country to work in another, including almost 2.5 million Asian workers (excluding China). The wage gap that enables a worker to earn more in an hour abroad than what she could earn in a day at home motivates international labor migration, raising the question of how the wage gap of 6 to 1 or more should be shared among workers, employers, recruiters and governments.

Workers incur costs over three major phases. The first involves the employer being certified to fill a job with a foreign worker. These employer-government costs are not usually passed on to migrant workers, but countries that require foreigners to have local sponsors or employers to pay levies may try to pass some of their costs on to workers.

Most worker-paid fees arise in the second phase, when workers learn about foreign jobs and obtain contracts to fill them. Foreign job orders usually arrive in major cities, while low-skilled migrants often live in rural areas, leading to layers of intermediaries between the migrant and the contract. Local agents travel from village to village seeking migrants, and these agents have more incentive to find people willing to pay for foreign jobs than the worker best suited to fill the job.

Once a worker-job match is made, there are documentation costs, as workers obtain passports and work visas, undergo health, criminal and other checks, and have their contract approved by a government agency. Agents often assist workers through the bureaucracy involved in legal labor migration.

Gains from reducing migration costs can be large. If 10 million workers a year pay $1,000 in fees, international labor migration is a $10 billion a year business, and cutting migration costs in half would save migrants $5 billion a year. Real worker savings are likely greater because many migrants pay more and take out loans at higher interest rates to pay migration costs, often paying 100 percent annual interest or more.

Reducing worker-paid migration costs requires several steps. First is promoting cooperation between governments to simplify recruitment and reduce opportunities for job-brokers and sponsors to charge workers.  Second is developing uniform contracts so that workers can more easily anticipate migration costs and net earnings abroad. Third is exploring changes to both migration policies, such as inducing recruiters to adhere to codes of best practice with incentives for good behavior rather than relying on penalties for violations.