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Southeast Asia needs better labor migration policies

Improving worker mobility benefits migrants and raises growth

| Myanmar, Cambodia, Laos
Myanmar workers in Thailand. An estimate shows that without the contribution of migrant workers, Thai GDP could be 0.75% lower.   © Reuters

One of the many signs of growing economic integration in Southeast Asia is a surge in labor migration.

While not as high as migration flows elsewhere in the world, the number of people in the 10 member countries of the Association of Southeast Asian Nations who have moved within the region to work in another ASEAN country has trebled in the past 20 years to 7 million, including some undocumented migrants.

ASEAN countries, which signaled their desire for deeper integration with the launch of the ASEAN Economic Community in 2015, should improve their policies to manage migration so that labor mobility benefits both the migrants and the rest of their populations.

Migrants as well as the countries that receive and send them have benefited from this integration of labor markets. Migrants can use their skills more fully and earn much more. Receiving countries, such as Singapore, Thailand and Malaysia, are able to alleviate labor shortages. Sending countries, such as Indonesia, the Philippines and Vietnam, gain from remittances that help lift families and communities out of poverty.

This movement across borders has also brought challenges. Estimates suggest as much as 50-60% of all migrants in Malaysia and Thailand lack proper documentation. While such informal migration exposes migrants to abuse, it dominates the region's major migration corridors, including those between Thailand and Cambodia; Laos and Myanmar; and Indonesia and Malaysia.

Recent research by the World Bank, published in its "Migrating to Opportunity" report, confirms that the benefits of intra-ASEAN migration could be even greater. There are missed opportunities that reduce these benefits -- both to migrants, especially the unskilled, and to the affected countries. Overly complex and uncoordinated policies as well as ineffective institutions are at the root of the problems. The systems that countries use in managing migration need to take account of the forces that determine how and why people move across borders in search of better economic prospects.

Migration within ASEAN, which has an overall population of 630 million, is driven largely by economic factors. Average wages in Singapore are at least five times those of any other ASEAN country. A Cambodian worker can earn three times more in Thailand. The pace of aging also varies significantly across the region. The median age in Singapore, the "oldest" ASEAN country, is nearly twice that of Laos, the region's "youngest" country. As these gaps in wages and demographic structures persist, people will continue to move across borders within ASEAN.

The benefits from labor mobility are large. Migrant workers contribute to higher growth in receiving countries such as Malaysia and Thailand by providing needed labor. In Malaysia, the entry of 10 migrant workers into a state leads to the employment of five additional Malaysian workers. Because they cost less, migrant workers help reduce production costs, thereby increasing output and creating more jobs for local workers with complementary skills.

Unskilled migrant workers also likely have only a slight impact on the wages of the local population. In Thailand and Malaysia, for example, high-skilled local workers are likely to earn slightly more due to the presence of foreign workers, while wages of their low-skilled counterparts will be reduced slightly by the migration of foreign workers.

The impact on growth rates can be more significant. Estimates for Malaysia show that a 10% increase in low-skilled immigrant workers increases gross domestic product by about 1.1%. Without migrant workers, a recent estimate shows that Thailand's GDP would decline by 0.75%.

In sending countries, remittances also play a critical role, accounting for about 10% of GDP in the Philippines and 6% in Vietnam. At the household level, remittances help reduce poverty. In the Philippines, studies show that families with a member abroad are twice as likely to escape poverty. Similar impacts are seen in Vietnam and Indonesia.

Yet many of the region's migration policies remain blunt, ineffective and costly. Last year, Thailand and Malaysia introduced measures to address undocumented migration. These interventions did not achieve their intended goals. In Malaysia, only a quarter of eligible undocumented migrants responded to an official registration campaign. Enforcement raids led to employers complaining about losing needed workers. Thailand issued a decree imposing stiff penalties for employers who hire undocumented workers. After thousands of workers fled the country, employers complained of labor shortages and the order was suspended.

What reforms can ASEAN prioritize so that the region can reap more of the potential benefits of labor mobility? Both receiving and sending countries can consider changes. Destination countries can develop migration systems that are responsive to their economic needs and consistent with their domestic policies. Malaysia, for instance, can tailor its system of levies on foreign low-skilled workers to changing economic conditions across the region, particularly through more collaboration with employers as well as sending countries. With high levels of informal migration, Thailand can rationalize its entry procedures so that they take less time while rethinking measures such as levies that are difficult to enforce.

Sending countries such as Indonesia and Myanmar can improve protections for migrant workers, including their oversight of recruitment agencies, while helping returning migrants re-enter domestic labor markets. The Philippines provides good lessons in establishing support systems for migrant workers.

ASEAN can also act, building on its introduction of Mutual Recognition Arrangements. But these measures target only a subset of professionals -- doctors, nurses, engineers and architects -- who comprise only about 5% of jobs in ASEAN. Furthermore, national migration policies take precedence, and they can restrict employment of foreigners even in occupations covered by these arrangements.

The low-skilled workers who comprise the bulk of ASEAN's migrant labor are barely covered by most of the regional policy dialogue. The 2007 Declaration on the Protection and Promotion of the Rights of Migrant Workers, and the 2017 ASEAN Consensus on the Protection and Promotion of the Rights of Migrant Workers, both recognize the importance of addressing issues related to all migrant workers. However, neither is binding on governments.

More ambitious action is needed to ensure that the gains from migration are more fully realized. These measures should facilitate the mobility of unskilled labor across the region while regulating migration more effectively. In this way, ASEAN countries can both reap a growth dividend and protect the most vulnerable workers who choose to migrate.

Sudhir Shetty is the World Bank's chief economist for the East Asia and Pacific region. Mauro Testaverde is an economist with the World Bank's Social Protection and Jobs Global Practice.

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