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Does emigration reduce poverty?

by Aly Ercelan, 2 September 2008

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Dawn, 24 December 2007

AT a time when political chatter and action are dominated by calls for rule of law, restoration of the judiciary and constitutional government, this article attempts to raise broader issues of economic justice. It focuses only on emigration in search of decent work. Are we missing the forest for the trees?

There are major exclusions in rights — such as the ban on female emigration, denial of collective bargaining, restrictions on family visas — that have not been taken up here.

The remarkable upsurge in foreign workers’ remittances over the last few years may raise receipts this year to over $5bn through formal channels. Macro impacts are therefore substantial — remittances exceed non-military receipts from donors, and are much larger than foreign direct investment.

Since Pakistan has recurrent trade deficits, remittances may be said to finance external debt servicing, reduce the need for external debt and, through larger foreign reserves, also lower the cost of external commercial debt as well as support the dollarised sectors through a stable exchange rate.

Even if currency were not printed to encash remittances, a stable exchange rate picks the pockets of poor emigrants, because country inflation requires progressively larger remittances to maintain a standard of consumption for the family back home. Few of them may be fortunate to share the benefits of external and domestic public debt and spending. Meanwhile, olives, dark chocolate and coffee beans become cheaper than in Italy.

How extensive and intensive is the contribution of foreign remittances to poverty reduction — alleviation if not eradication — through direct recipients as well as beneficiaries of remittance spending? Poverty is taken here to be officially defined as absolute income poverty, since relative poverty can be as meaningless as a reference to everyone else with income smaller than our various wealthy presidents and prime ministers. In the absence of recent focused surveys, some estimates can be conjectured.

Optimistically, one could assume that all remittances of say $5bn went to otherwise poor 25 million citizens, and all remittance spending went entirely as income to the remaining 25 million citizens in the bottom third of the population. In the absence of inequality, each person in this group could then receive $200 per year, providing an escape from destitution. If additional sources of income were to provide half as much, such households would cease to be poor.

One consequence of a militarised state is mass poverty, currently the affliction of more than 40 million people. Who then are these men, women and children? Several observations (as constructed facts) negate the basic premise that remittances went largely to the poorest, directly or indirectly.

For one, a major but not overwhelming share of emigrants goes to the semi-skilled and skilled, who are unlikely to belong to the poorest households. Furthermore, Middle East remittances have a declining share in favour of western countries, notably the US which hosts privileged emigrants. Then there is the fact of much inequality in the distribution of national income — so remittance spending is unlikely to be concentrated amongst the poorest. Yet another fact to note is that the poorest areas of Pakistan have a share in emigrants often much smaller than their share in population.

A modest-impact scenario may be suggested as a plausible alternative.

The poorest, bottom third of the population does receive direct remittances and indirect multiplier incomes but only according to its (highly unequal) share in all income, say one-fifth at most. A country level of $5bn for remittances, with a multiplier of five would yield $25bn additional national income. Of this the 50 million poor would share an additional $5bn, or on average of $100 per capita. This is a maximum (net) impact in the sense that pre-migration income is assumed to be nil. Negligible inflation is assumed but is unlikely with such massive additional demand for domestic goods and services — even if it insulates the remittance recipients it devalues the real incomes of other poor households.

How many could then be reasonably expected to escape poverty by an addition of $100 per capita, at best?

Other sources of income would then have to contribute twice this amount for a poverty threshold of $300 per capita. When paid the minimum wage, more than one additional earner is needed to bridge the poverty gap. But how probable is this as an application to all of the bottom-third population?

Several full-time earners are doubtful. Official surveys point to the improbable achievement of the national minimum wage in not just rural but also urban Pakistan. Even Islamabad and its environs are no exception, as established by ILO surveys of debt bondage.

Several factors can create a more intensive impact on poverty reduction. An obvious one is a smaller population of direct and indirect beneficiaries for a given level of remittances and multiplier effects. Another factor favouring poorer emigrants would be substantial informal remittances in the Hundi system; so would durable consumption goods brought by emigrants. The magnitude of such adjustments is open to speculation, but wisdom suggests restraint.

To conclude, international migration certainly reduces poverty, but more so as poverty alleviation rather than eradication. Hence a rebuke to economic managers and caretakers who would have many believe that emigration is a significant substitute for decent work at home.

Is it an accident that several thousand workers, including Pakistanis, were recently deported from the UAE for demanding a monthly wage higher than $150? Even when not barricaded, the Pakistan government cannot protest because it shares with the UAE a disdain of international conventions, including the UN Convention on the Protection of the Rights of All Migrant Workers and their Families. The judiciary is gagged, even if it were to acknowledge obligations to the poor as its pre-eminent constitutional mandate. Upon assumption of the third pillar, the armed forces are keener to display physical violence rather than act against economic violence.

Why has promoting emigration become official growth policy over the past four decades?

Permitting escape from low wages, extensive underemployment and unemployment, emigration dilutes constitutional obligations upon the state to ensure decent work for all citizens. The higher incomes from emigration also forestall rising female labour participation, aiding the dominance of patriarchy in state and society. This is no mean feat, since underpaid and unpaid female labour, along with child labour, provides cheap and docile labour to society. To you, and me.

Prescriptions come easy, of which an adequate minimum wage — universally applied without discrimination between men, women and children — is obvious. To be meaningful, regular employment must also be assured. Hence, it is a demand for minimum decent income in country employment.

Such demands by the labour movement gain relevance only when labour again becomes integral to public action for participatory democracy. This is much beyond the entitlement to choose representative patronage from amongst contesting state elites, given the dismal social protection provided by state institutions.