9. Human capital and labor mobility

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9. Human capital and labor mobility
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Two huge issues

• Labor mobility and the gains from globalization
• Internal migration
• International migration
• Promoting the growth of human capital
• Why are these huge for development?

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Why does labor move?
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Poverty impact of growth depends on labor mobility

• Why does labor migrate?
• What happens in each economy when it moves
  between them?
• Gains/losses in GDP and GNI
• Wages in each economy
• Labor mobility need not be between national
  economies
• Chinas experience of internal migration
  restrictions
• Hukou acts like a tax on rural labor

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Migration and wages standard model
w1 w10 w 01
VMPL1
VMPL2
w2 w w20 02
a
d
b
e
c
LA L
VMPL marginal product of labor (demand), with
K fixed in each sector Outmig. area reads from
right, L importer from left Migration flow
equal to qty LAL equalizes w. Notice w1 must
fall to achieve this-- unless VMPL2 rises for
some reason
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Labor effects of FDI with segmentation
w1 w10 01
w2 w20 02
VMPL2
VMPL1
a
c
LF
No migration labor fixed at LF, wages do not
equalize FDI raises L demand in sector 1, what
happens to wages in 1? To wages in 2? To
poverty, assuming thats in sector 2?
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Labor effects of FDI with integration
w11 w10 w12 01
w2 w22 w20 02
VMPL2
VMPL1
a
c
LF L

No migration labor fixed at LF, wages do not
equalize FDI raises L demand in sector 1, what
happens to wages in 1? To wages in 2? To
poverty, assuming thats in sector 2?
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Globalization produces unbalanced growth

• Pursuit of comparative advantage implies uneven
  distribution of industry gains and losses
• Most industries are clustered by location
• Adjustment to globally-linked economy requires
  factor mobility, especially for labor
• Logic of industry locations (mines, ports, etc)
• Limits on factor mobility constrain capacity to
  gain from globalization
• If globalization is the engine of growth, labor
  immobility throws sand in its gears

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Vietnam spatial concentration of activity
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Inter-provincial migration, by region
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What would poverty changes have been without
migration?
Region Poverty 1993 Poverty 1998 Change ()
Red River Delta 62.7 29.3 -53
North East 86.1 62 -28
North West 81 73.4 -9
N. Central Coast 74.5 48.1 -35
S. Central Coast 47.2 34.5 -27
Central Highlands 70 52.4 -25
South East HCMC 37 12.2 -67
Mekong Delta 47.1 36.9 -22
VIETNAM 58.1 37.4 -36
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Poverty impact of FDI depends on labor mobility

• Analysis (i) effects of FDI on labor demand
  (ii) response of the labor market (e.g.
  rural-urban migration)
• Poverty is most widespread in rural areas
• Labor market may be segmented
• How will gains of FDI-led growth be distributed?

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Labor exports and cross-border migration

• Since 1970s big extra-regional flows
• SE Asian workers in resource-extracting economies
  of Middle East
• Filipinos in high-income industrialized economies
  (US, EU, HK, Australia, etc)
• SE Asian workers in high-income industrializing
  East Asia (Korea, Taiwan, Japan)
• South-North migration
• Post-Plaza ASEAN income divergence, big
  intra-regional flows
• Indonesia to Malaysia and Singapore
• Burma, Laos and Cambodia to Thailand
• Vietnam to Malaysia. Thailand
• Philippines to Hong Kong, Singapore and
  everywhere
• South-South migration

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Manning Bhatnagar. Numbers are in thousands.
Thai figures are grossly underestimated
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Case studies

• South-North Filipino emigration and labor export
• 9-11m Filipino workers abroad (10 population
  nearly 20 of potential labor force)
• South-South Burmese labor export to Thailand
• 1.5 2m Burmese workers in Thailand (12 labor
  force?)
• 6-7 of Thai labor force maybe 20 or more of
  unskilled workers

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Filipino workers are their countrys main export
Source UST Social Research Centre
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Who leaves the Philippines? Everybody
Source UST Social Research Centre
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South-North migrants do the best
Source UST Social Research Centre
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Burma-Thai divergence rough comparisons
Indicator Burma Thailand T/B Ratio Source
Per cap. inc. 1956 (Rs, COL adj) 300 400 1.33 Myrdal 1967
Per cap. inc 1978 (, OER) 150 490 3.27 World Dev. Rep. 1980
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Why do Burmese move to Thailand?

• economic motives
• incomes and opportunities
• unemployment and forced labor
• inflation, shortages, rationing
• political motives
• Risk of persecution, human rights abuses,
  political and ethnic repression
• Internal violence and armed conflict
• There are estimated to be as many internally
  displaced people within Burma as there are exiles
  and outmigrants

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How many Burmese workers?

• Numbers
• About 600,000 registered Burmese temporary
  migrant workers workers in Thailand (2006)
• Perhaps 1.5m more unregistered workers
• Trends
• Numbers of Burmese workers in Thailand have
  increased steadily, with a small decline only
  after 1997 (Asian crisis)
• Comparisons
• Burmese labor force estimated to be 27m workers
• Burmese in Thailand are 80-90 of Burmese workers
  abroad
• Burmese account for 80-90 of foreign workers in
  Thailand
• Comparable to undocumented workers in the EU, US

?
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What do migrants experience in Thailand?

• Occupations
• Dirty, difficult (degrading) and dangerous.
  Fisheries, farming, construction, personal
  services factory work
• Among registered workers 24 in fisheries 18
  in farming 14 in domestic services others in
  mfg, mining, quarrying, construction
• Unregistered workers in these occptns and also
  market/trade hotels, restaurants, prostitution
• Wages and conditions job security
• Wages frequently reported as /23 - 3/4 Thai
  equivalents
• In real terms, monthly wages constant (60 in
  2003 prices) since 1980s
• No measurable wage premium for registered workers
• Few rights none for unregistered workers (but in
  Burma, rights violations for all are the norm,
  not the exception)
• Regulatory and legal environment
• Thailand introduced permit system 1996
• Registration and legal status (Registration costs
  equiv to 2 mo. income)
• Labor rights human rights access to social
  services

?
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Impact of migrants on Thai prodn and trade

• Sector-specificity of occupations taken by most
  migrants
• Jobs in fisheries, agriculture, construction and
  personal services sectors cannot be outsourced
• Trade benefits
• Ag fisheries contribute 18 of Thai exports by
  value
• Movement of Thai garment producers to the western
  provinces migrant workers delay the sunset for
  these labor-intensive industries (13 of exports)
• Fewer migrants --gt lower prodn in these sectors
• Anecdotal evidence 1999 deportation of 30,000 B.
  workers in Tak province --gt closure of 30 garment
  and canning factories, unharvested vegetable,
  flower and other hort. crops
• Less than 6,000 Thai workers sought to fill
  vacated jobs
• Factor market complementarities
• Migrants promote foreign direct investment
  inflows
• In longer term, may raise returns to skilled
  labor (and thus to educational investments)
• How???

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Impact of migrants on the Burmese economy

• Wages and conditions in Thailand are vastly
  superior to equivalent occupations in Burma
• Agriculture (gtgt50 Burmese labor force) has been
  subject to price controls and mandatory sales to
  the state reducing returns on land and labor
• Forced labor in infrastructure projects (est. 3
  GDP)
• Instability and destruction through internal
  warfare
• Average income less than 1/day
• Child labor rate estimated at 24
• gt Remittances (if any) from overseas workers
  should be highly influential to households that
  can receive and use them
• If Mexico-US migration is a guide, benefits are
  concentrated along the border and dissipate with
  distance

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Human capital and education

• Adding human capital (H) into Solow
  Y Aƒ(K, H, L)
• Increases in stock of human capital are like
  augmentation of total labor force
• More H raises the marginal productivity of K, L
• Putting it all together Y Aƒ(K, H,
  L)Nwhere K Kdom KFDI
• Openness and human capital accumulation are
  usually complementary

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Past education investment in SE Asia

• NE Asia famous for education ahead of demand
• What about SE Asia? (Booth 2003)

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Past and projected years of schooling
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Education and labor productivity

• Labor productivity is raised by increases in
  capital stock
• and by improvements in labor quality (education,
  etc)
• Returns to education are higher in economies that
  innovate and move up product ladder
• Therefore, in more open economies other things
  equal
• What about countervailing forces? Is there a
  downside to globalization? Could more openness
  actually reduce L productivity? Incentives for
  education?

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Labor productivity growth in East Asia
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L. prody growth a closer look
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Labor productivity growth
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Homework questions.

• (1) What do you think are the main determinants
  or constraints to increased H supply?
• (2) What do you think are the main drivers of
  increased H demand? Remember that as with all
  production factors, demand for H is derived
  (not direct). It is determined by demand for the
  product in which the factors are used (just as
  the demand for agricultural land is derived
  from agricultural product markets and food
  prices).
• (3) Think about a country that is moving up the
  product ladder to exports dominated by
  fragmented component production for the China
  assembly industry. What do you expect to happen
  to returns to H as it moves up the ladder? Will
  they increase, decline, or not sure?
• (4) Now think about a country that has a mix of
  industry and natural resource wealth. What do
  you think could happen to returns to H as it
  experiences a boom in natural resource exports?
  Will they increase, decline, or not sure?
• (5) If you were to offer any policy advice to the
  resource-rich country, what would it be? In your
  answer, be brief and be as specific as you can.

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Educational investments and returns

• E Asian Miracle primary education investments
  yield highest contribution to GDP growth
• Consistent with global data on returns to
  education
• What causes educational attainments to rise or
  fall?
• Where is most public education investment
  concentrated?
• How are the gains from educational investments
  distributed?
• Khoman (2005) Thailand case

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Educational expenditure and distribution
evidence from Thailand

• Thailands education rates were low before the
  boom, and didnt rise much with it
• Opportunity cost of schooling farm/factory
  earnings
• Taking account of quality and cost of education
• In 2001, 75 of rural Thai workers still have
  primary education or less (Khoman258).
• Quality of educational experience regarded as low
• Structural reasons (educational
  policies/infrastructure)
• Most able teachers leave for private sector
  (opportunity cost)

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Access to education in Thailand

• In rural areas, majority of children dont stay
  in school beyond 12-14 years old (majority of
  urban do)
• Financial costs exclude the most low income
  groups
• Rural job qualifications do not demand much
  education
• Only formal sector jobs (public service, large
  companies) require ed. beyond primary
• If prob. of formal sector job is low, why stay at
  school?
• School quality quantity is far lower in rural
  areas
• Public kindergartens are all urban, so is ½
  municipal school enrolment and ½ private high
  schools
• Low education ? low incomes ? inter-generational
  perpetuation of low access

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Access distribution of public expenditures

• Most public education is heavily subsidized
• Fees charged
• Secondary 2-22 of costs
• Vocational 4-37 of costs
• Universities 7-14
• What do low fees do to structure of demand? Who
  benefits from this?
• Most demand for higher education (and even
  secondary) comes from more wealthy households

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Distribution of benefits from pub exp on ed
Hhold group Benefits (Baht m) Distribution ()
Poorest 10 8.913 7.6
2nd 10 9,210 7.9
3rd 10 9,346 8.0
4th 10 8,938 7.7
5th 10 8,925 7.7
6th 10 9,567 8.2
7th 10 10,223 8.8
8th 10 12,236 10.5
9th 10 16,515 14.2
Richest 10 22,838 19.6
Total 116,710 100.0
Differences in opportunity to take advantage of
education favor the wealthiest
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Summary

• Labor mobility is the key to spread of gains from
  globalizn
• National border matter less than before
  international fragmentation of labor markets
• Labor movements support changes in comparative
  advantage, as does FDI
• Human capital investments key to sustained
  growth and productivity improvement
• Constraints on H supply growth financial cost,
  opportunity cost
• Public policies are less than optimal ?
  implications for both growth and equity

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Tomorrow

• Can a developing country manage its macroeconomy?
  The tradeoff between growth and stabilization in
  Vietnam
• Quiz 2
• Turn in research projects
• Lunch in Hanoi!