The fears that the economic crisis of 2008 would lead to a decline in remittances and the returns of migrants to their sending countries were largely unfounded. Our volume reveals that while remittances declined following the crisis, they have largely recovered. Three trends that characterize remittances practices globally are:
- More diversified destinations and labor markets lead to more resilient remittances for migrants
- Lower barriers to labor mobility in receiving countries lead to remittances that are larger and critical to the economic health of migrant households.
- Remittance-dependent countries rely on remittance inflows for external financial needs.
These common sense findings are obscured by the myths that surround remittance practices, including:
As a consequence of the global economic crisis, 2009 marked a hiccup in the trend of increasing remittance flows to developing countries. In most parts of the world, the growth rate of remittances was indeed negative. But what is striking is that there was an inverse relationship between remittances and unemployment. In other words, the greater the drop in remittances, the higher was the increase in the unemployment rate. In Moldova, for instance, remittances decreased by 36% in 2009, while the unemployment rate increased by 61%. By contrast, in Fiji, remittances increased by 24% and unemployment dropped by 7%.
The scatter plot below illustrates the relationship between changes in remittances and changes in unemployment, both measured as the annual growth rate (in percentage) between 2008 and 2009, for 29 developing countries. The x-axis represents changes in remittances and the y-axis the change in unemployment. The figure shows a negative correlation between the two variables.
There has recently been heated debate regarding migrant employment behavior in host countries during and after economic crises. The popular view is that migrants have an incentive to remain unemployed as long as they have access to unemployment benefits, free health care, and education. Thus, many argue, that migrants should not be provided with benefits as they create perverse incentives for migrants to stay unemployed. However, recent data does not support such a simple relationship. In fact recent data shows that sometimes migrants that lose jobs tend to find work quickly during and after crises.
A recent article in the Economist based on OECD Migration Outlook 2011 provided some useful data to show the complex patterns of migrant unemployment compared to nationals. The data shows that the relationship between migrants and unemployment incidence depends on a variety of labor market conditions including unemployment benefits, skill level of migrants, business cycle patterns, the sectors they are employed in, and labor market flexibility.
A recent study by PEW Hispanic Center states that immigrants are finding jobs faster during 2010. According to the report “immigrants in the U.S. have gained 656,000 jobs since the Great Recession ended in June 2009. By comparison, U.S.-born workers lost 1.2 million jobs. The unemployment rate for immigrants fell over the same period to 8.7 percent from 9.3 percent. For American-born workers, the jobless rate rose to 9.7 percent from 9.2 percent.”
Two other labor indicators show a recovery for immigrants workers in the US labor market: 1) an increase in the labor force participation from 68% in the second quarter of 2009 to 68.2% in the second quarter in 2010; 2) an increase in the employment rate from 61.7% to 62.3% during the same period. The study also points out at the greater mobility of immigrants in finding jobs in different states. In a previous podcast we underscored the mobility of hispanic immigrants due to their diaspora connections (see previous post).
Due to the global recession, migration to the EU slowed down in 2009, for a net migration of 1,464,059 in 2008 to 857,186 in 2009 (a 40% decline). The reduction in migration flows is due to employment losses in countries of destination (especially Spain, Italy, UK) and to more restrictive immigration policies devised by European countries (e.g. UK points system, Italy prohibition on access to health service for undocumented migrants, Spain’s reduction in the number of positions available for immigrants).
The slow recovery of the US economy is affecting the hiring of high-skilled immigrants. This lower demand is reflected in fewer applications for H1-B visas. The current annual cap is set at 65,000, with an additional 20,000 for holders of advanced degrees. The present crisis is exhibiting similar characteristics as the 1991 downturn: 1) Lower demand for new foreign high-skilled workers. US firms are not recruiting overseas; and 2) Lower demand for foreign high-skilled graduates of US universities.
The U.S. Citizenship and Immigration Services (USCIS) put out a statement on April 08, 2010 that “it has received approximately 13,500 H-1B petitions counting toward the Congressionally-mandated 65,000 cap during the first two weeks of April 2010.” (See USCIS - USCIS Continues to Accept FY 2011 H-1B Petitions). That’s far fewer than the 42,000 requests filed during the same period last year (See post). Unlike in previous years, foreign graduates of US universities are not finding jobs in US. The applications for foreign workers with advanced degrees have only reached 5,800 applications by April 15, 2010.
This is the second year that the annual quota for H1B visas has not been filled during the first week of April. Since the recession worsened in late 2008, the annual quota has remained open longer than in the previous years (see graph below). For the US 2010 fiscal year (the fiscal year begins on October 1 and ends on September 30), it took until December 21, 2009 to fill the quota (280 days). In 2009, it closed in one day and in 2008, it closed in two days. Only in 2004, when the quota was reduced from 195,000 to 65,000, there were still visa slots available as of October 1, 2003 (323 days). It seems that for the 2011 fiscal year, the annual quota will remain open longer than last year.
I was in Dubai two weeks ago to attend a meeting of the World Economic Forum. Our hosts, the Government of Dubai, told us that Dubai had turned the corner – hotel occupancy was up, airline traffic had recovered, and Burj Dubai, the tallest building in the world was complete. And then the story broke – Dubai World was having difficulty repaying creditors.
Many migrant workers, from Bangladesh in particular, are somewhat stuck in Dubai because they cannot afford to return. It costs about 12,000 dirhams to pay recruitment agencies and travel costs. At a monthly income below 900 dirhams – no overtime these days – a construction worker can easily take three years to save enough to repay recruitment costs. Too bad there is a crisis – they just can’t risk returning home. So many are entering into creative arrangements (e.g., taking unpaid leave) with employers to simply wait it out in Dubai.
The Migration and Remittances Team of the Development Economics Prospects Group (DECPG) of the World Bank is organizing a brown bag lunch seminar on "The Impact of the Economic Crisis on Migration and Remittances" on Monday, June 1, 2009 from 12:00pm-1:30pm, at the Main Complex of the World Bank, 1818 H Street NW, Room MC5-100. Two eminent scholars, Bimal Ghosh (Colombian School of Public Administration) and Manuel Orozco (Inter-American Dialogue) will present their views on how the economic crisis is effecting migration and remittances world-wide. The event will be chaired by Dilip Ratha, Lead Economist, DECPG.
This event is open to the public. If you would like to attend the brown bag lunch seminar, please RSVP by emailing Claudia Carter at: [email protected].