Columns - The Sunday Times Economic Analysis

Economic benefits and social costs of migration

By Nimal Sanderatne

Remittances of Sri Lankans working abroad have assumed a huge importance to the Sri Lankan economy. The significance of remittances from outmigration to Sri Lanka’s balance of payments and the economy is of such a magnitude that I have described the contemporary Sri Lankan economy as a ‘remittance-dependent economy’. About 80 per cent of the huge trade deficit of US 5.2 million dollars in 2010 was offset by remittances from abroad. In the first five months of this year till May, remittances amounted to US dollars 2,103 million and offset about two-thirds of the ballooning trade deficit for the first five months of 2011. Remittances are far more important than many of the country’s exports and inflows of capital. Earnings from tourism, that grew 54.5 per cent to US dollars 318 million during the first five months of the year was only about one seventh that of remittances.

In the last decade remittances were much larger than official development assistance (ODA), foreign direct investment (FDI) or aid and even all three taken together. It is estimated that remittances contributed 8 per cent to GDP in 2008. There is therefore no doubt of the economy’s dependency on remittances. The benefits of remittances are not confined to its balance of payments support. Remittance incomes alleviate poverty and improve living conditions of a significant population in the country. The situation in Sri Lanka is very similar to that of Bangladesh, Nepal and Pakistan, where remittances are not only a support to the trade balance but an important way by which the country’s poverty is alleviated. Families receiving remittances invest more in housing, education, and health care. However there are also social costs including child abuse, school dropouts and family break-ups as a result of family separation. Therefore the effects of out-migration are mixed. A large proportion of the outflow consists of women domestic workers who have been vulnerable in destination countries and are a cause for neglect of children and ageing parents.

In the first three decades after independence the country was dependent on three primary products tea, rubber and coconut for its export earnings to finance her imports. No longer is there this dependency. The diversification of the economy has meant that industrial exports such as garments, rubber based manufactures, ceramics and a number of other industrial exports together account for most of its export earnings. Yet these earnings are not as important as the large amount of remittances from Sri Lankan workers abroad. This is especially so as other export earnings have high import content as well. Though some part of the remittances would also leak out, as increased incomes from remittances would increase consumption of imported goods, this is likely to be less than the costs of inputs into manufactures that may be as high as 60 to 75 per cent of the export value. Even tourist earnings that are rising are not as significant as the amount of worker remittances.

In-depth analysis;

A very recent book, Migration, Remittances and Development in South Asia, edited by Dr Saman Kelegama,(Reviewed in the Sunday Times Business Times of July 24) explores the impact of migration on development in South Asian countries and makes recommendations for benefiting more from outmigration and reducing the ill effects of it.

This book examines how migration should be brought into the mainstream of development planning and directed in a manner that migration, just as much as other population changes, are an integral part of the development factors. Remittances have tended to be viewed as an adjunct to issues in development despite its contribution to various facets of development.

In its assessment of migration on Sri Lankan economy and society its assessment of the economic benefits are that remittances have provided significant support to the balance of payments, increased the investment rate in the country and brought about some macro-economic stability. At a micro and household level remittances have mitigated poverty, improved household’s ability to endure external shocks, provided credit for household enterprises and increased investment in health and education. Although migration has reduced unemployment, it has created a labour shortage, exposed the country to external shocks experienced in destination countries, and resulted in brain drain due to the migration of skilled workers. The author notes that the impacts have been mixed in other countries as well as in Sri Lanka. The negative effects of migration include the disintegration of families, violations of the rights of the workers and a lack of interest on the part of the government to create jobs domestically.

Impacts on health and education

An important revelation in the study is the mixed effects on health and education of the migrant households. The study observes: “On the one hand, migration leads to greater investments in education and health due to increased wealth and better health knowledge. However, the health and education outcomes of households of migrants are mixed and are dependent on both the characteristics of the migrant and their household. Remittances on the one hand, provide better education and health opportunities to household members.

However, migration of parents can leave families of young children with inadequate guidance and an additional burden of household responsibilities which can lead to higher school absenteeism, school drop-outs, poor nutrition and health care of children - especially younger children, and substance abuse – especially older children.’ A further observation of significance is that “Given that Sri Lanka has a rapidly ageing population, the breakdown of traditional family support for elderly due to migration is a concern, both for households and policy makers.”

The study finds that remittances have increased the demand for health and education services. In communities where there are high concentrations of migrants, better investments in health have increased demand for health and education services thereby increasing investments in high-end private sector health and education facilities. On average investments on health and education are higher for migrant households. However, at the national level, school enrolment and morbidity were not significantly different between migrant and non immigrant households.

Employment and unemployment

The country has achieved a low level of unemployment. Three factors account for this: the higher level of economic activities, lower inflows to the labour force owing to the declining population rate and the outmigration of workers. Foreign employment has been a continued source of employment to the country’s labour force and a significant proportion of the labour force is working abroad. This has contributed to reducing the unemployment rate of the country and also increased wages of skilled and unskilled workers.

The government actively promotes migration of skilled workers, by promoting tertiary and vocational education with the objective of meeting global job demands. Given the limited opportunities in the country’s tertiary education sector, there is a high demand for training programmes aimed at foreign employment. There is evidence to show that emigration of workers has helped to lower the unemployment rate and improve wages at the lower levels. The study cautions: “However, given that the Sri Lankan labour force has started to shrink, promotion of foreign employment needs to be done with caution. On the one hand, shrinking labour resources can adversely affect the economy. …. the combined effect of a shrinking labour force and an increasing dependency ratio can reduce annual economic growth rates by up to 1 per cent. On the other hand, despite benefits from low skilled migrations, over-reliance on foreign employment can delay reforms needed for improving job creation within the country.”

Social costs

There are also adverse social consequences arising from the migration of persons for employment abroad. There are a number of costs associated with foreign employment. The lack of protection and welfare for workers and the social and psychological costs associated with migration has been of concern for policy makers for long. This is of special concern to housemaids and low skilled migrants with low education attainments. There are numerous instances where these workers have been sexually and physically abused and not properly paid for their services. Although the government has taken several steps to improve the rights and freedom of migrant workers and the welfare of families that are left behind, the effectiveness of these measures in improving the present conditions is yet to be seen. The recently articulated policy on labour migrations seems to assume that migration of all types of workers abroad is beneficial as long as the worker rights and freedom is ensured and the welfare of the families of migrant workers is looked into.

Positive and negative outcomes

The outmigrations of Sri Lankans no doubt contribute handsomely to the country’s economy. However there are both benefits and adverse impacts of outmigration. The main positive impacts are that the remittances strengthen the balance of payments and contribute to GDP. They have also contributed to the improvement of living conditions and livelihoods. No doubt one of the ways by which poverty has been alleviated has been these remittances.

These have enhanced incomes of the poor especially those in rural areas. No doubt the poor have improved their living conditions owing to remittances from migration. Unemployment in the country has been reduced by migration but availability of skilled labour has decreased and labour costs have increased. However there are several problems encountered by the migrants in foreign countries and has led to serious dislocation of family life and caring for children and parents left behind. Therefore national policy towards migration must consider all these facets, both good and bad, in determining policy.

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