Monday, October 13, 2008

Does skilled migrants remit less?

Who remits more: skilled or unskilled migrants? According to a new Asian Development Bank (ADB) working paper, unskilled migrants remit more than skilled migrants. Okay! But what policy conclusion can we derive from this finding? Well, the authors of the paper argue that for a source country, it would be better to focus on policies to promote unskilled labor migration. This finding somehow support the argument that brain drain is bad. But it may not be necessarily so in this globalized world- see this article from The Economist. Also, migration does not always have to be from poor to rich countries; it can happen the other way round or from poor to poor countries.

Skilled migrants tend to have higher incomes and can afford to send more remittances to their families back home. On the other hand, they tend to come from better off families whose demand for remittances is lower relative to poorer ones. Furthermore, skilled migrants are able to bring their families along with them as they tend to enjoy more secure legal status. All of these factors reduce the incentives to send remittances. Thus, the net impact of an increase in migrants’ level of education on remittances is ambiguous a priori. Empirical studies have so far been unable to resolve the debate on this issue. This paper’s main contribution is to show that remittances actually decrease with an increase in migrants’ overall level of education.

They find that remittances decrease for migrants with tertiary education.This is hard to believe given the fact that India, China, and France (three of the top five recipients of remittances in 2007) get a substantial chunk of remittances from skilled workers. Meanwhile, countries like the Philippines, Bangladesh, Mexico, and Nepal receive a major chunk of remittances from unskilled workers. Here is a list of top ten remittance receivers in 2007.

The determinants of remittance are migration levels and rates, migrants’ education level, and source countries’ income, financial sector development, and expected growth rate, among others. I think rate of return of labor and rate of return of education of workers in their home country are two of the main variables of migration function. A World Bank study on remittances and brain drain found that in the case of Mexico, migrants are less uneducated than nonmigrants. Generally, if the rate of return for labor and education is higher in source country, then educated workers opt to stay back. On a policy level, it is not necessary to focus on retaining educated migrants because they make decision based on the rate of return in the domestic market. Meanwhile, it might be fruitful if policies are designed to facilitate migration of unskilled workers to countries where there is high return to labor, provided that the domestic market is either saturated or incapable of absorbing unskilled, unemployed workers.