Do Remittances Spur Development in Social Services?

Nikeisha Stephens analyzes whether money sent by immigrant workers to relatives in their native countries offsets the negative effects caused by skilled workers leaving their native countries to pursue better opportunities.

Nikeisha Stephens

Abstract

Every year the number of highly skilled workers leaving their home country to explore greener pastures is astronomical. This loss of labor decreases developing countries’ human capital and thus their overall economic growth. However, many migrant workers send remittances to support their families back home. The volume of global remittances increases with the rise in emigration. This research paper asks if remittances spur development in social services. The research examines the magnitude of tertiary-educated individuals emigrating and the role remittances and diaspora communities play in developing countries. In addition, it examines the effects of absent skilled workers on the development of their home country. It concludes that the loss of manpower in crucial social services hinders the development of third world countries. Remaining residents are negatively affected by the loss in public expenditures.

Every year developing countries lose a large amount of highly skilled workers to developed countries. The exodus of these workers creates a drain on the sending country’s human resources because the receiving country gains the benefits of human capital. This cycle decreases the amount of manpower in crucial services such as health and education. For instance, Malawi is afflicted with Africa’s most severe nurse shortages. According to Roisin (n.d.), “More registered nurses have left to work abroad than the 336 who remain in the country’s public hospitals and clinics that serve most of its 11.6 million people” (para.6). This decreases the developing country’s human capital and thus its economic, social, and political sectors deteriorate.

Throughout history, migration has been a characteristic of humans. However, when the best and brightest leave third world countries to reside in developed countries, it creates a dangerous cycle. Governmental policies such as the H-1 visa program in the United States increased the mobility of these people. The Immigration and Nationality Act of 1952 was responsible for bringing “workers of distinguished merit and ability into the country on a temporary basis to fill positions that were themselves of limited duration” (Kapur & McHale, 2005, p.54). This law has encouraged the exodus of millions of emigrants throughout the last half of the twentieth century.

The increased demand for labor in developed countries drives the migration of the highly skilled workers. Talent and skills are the most precious assets on the world market. Employers in developed countries rely on the global market for access to skilled workers in developing countries. Moreover, developed countries offer economic stability and more employment opportunities. This is an attractive solution for many migrants. However, it is very difficult for developing countries to compete. They would have to offer similar incentives such as higher wages in order to slow the flow of highly skilled workers. Currently, there is little evidence to suggest that the flow of labor will decrease in the future.

The flow of highly skilled professionals from developing countries to industrial countries is controversial. Supporters suggest that emigrants play a key role in the development of their home country. This is achieved by remittances, inward investments, and increased trade flows. However, critics argue that the loss of human capital decreases developing countries’ overall economic growth. When skilled workers emigrate, they take their skills and tax revenues. These tax revenues support expenditures such as the public health system.

The topic of this research paper is: do remittances spur development in social services? There are many aspects to this controversial topic; this paper will address the following questions:

  1. How large is the problem?

  2. How many tertiary-educated individuals are emigrating?

  3. What is the role of remittances in developing countries?

  4. What are the roles of diaspora communities and developing countries?

  5. What are the effects of absent skilled workers?

  6. What is the price of lost labor?

  7. Do remittances spur development in social services?

How Large Is the Problem?

The flight of migrant workers in developing countries to developed countries is continually increasing. In 2000, the United Nations estimates that “175 million people were living outside their country of birth…just less than 3 percent of the world’s population and considerably more than the 120 million estimated in 1990” (Kapur & McHale, 2005, p.12). The United States is the top destination for immigrants. In 2000, it is estimated that the US had 35 million immigrants, the largest foreign born population in the world.

The hunt for specialized skills on the global market increases the outflow of labor. There is a high demand for skilled workers in developed countries. These include doctors, scientists, engineers, nurses and teachers. Developed countries offer many incentives to attract these workers. These include higher wages, improved social status, and political stability. Moreover, developed countries compete among themselves to attain highly skilled workers. For instance Canada’s point system makes it easy for highly skilled workers to gain permanent residence. According to George Borjas, an economist, “There…exists an immigration market allocating persons wishing to leave their current countries of residence among the few host countries willing to host them….Host, countries, like firms looking for specific types of workers, set immigration policies so they can attract specific types of migrants” (Kapur & McHale, 2005, p.38).

Furthermore, political conflicts and economic instability contribute to the departure of skilled workers. For instance Timor, a Southeast Asian country, is divided into east and west according to historical events. Between 1995 and 2000, this war-torn country had an annual average of “41 emigrants leaving per 1000 people” (Kapur & McHale, 2005, p.12). In the nineties, Jamaica’s inflation rate was 80.2 percent. According to Kapur & McHale (2005), “Jamaica had an outflow of 3 people per 1000” (p.14). These issues contributed to the outflow of many highly skilled personnel.

How Many Tertiary-Educated Individuals are Emigrating?

The exodus of skilled workers compared to unqualified workers is an important factor in determining the significant absence of human capital. According to the Organization for Economic Co-operation and Development (OECD), the Caribbean region had the highest rate among all countries of tertiary-educated people emigrating in 1990 (41.4) and 2000 (40.9). It is also estimated that “nearly one in 10 tertiary-educated adults (those with some university or post secondary schooling) born in the developing world - between a third and half of the developing world’s science and technology personnel - now live in the developed world” (Sriskandarajah, 2005, para. 2). Notably, the United States had 78.6 percent of tertiary-educated Jamaicans in 2000. According to the OECD, this accounts for approximately 449,795 Jamaicans residing in the US. Moreover, the Western African region had the second largest amount of college-educated emigrants. The OECD suggests that between 1990 and 2000 there was a 6 percent increase in emigrants: from 20.7 in 1990 to 26.7 in 2000 (as cited in Kapur & McHale, 2005, p.19). The volume of foreign-born educated people residing in the US is high. As the demand for labor increases, so do the number of emigrants who leave their home country.

The technological revolution spurred growth in developing countries, specifically the information technology field. There is a high demand in the global market for these workers, especially among companies in the Silicon Valley. According to Devane (2006), among “11,443 high-tech start-up companies in Silicon Valley between 1980 and 1998…one-fourth had ethnic Chinese and Indian immigrants as senior executives” (p. 59). Moreover, the flow of Indian information technology professionals to the United States has increased. According to Kapur & McHale (2005), “In 1998, 34,000 Indian students and 30,000 Indian professionals immigrated to the United States” (p.98). The flow of labor from these regions results in the absence of scarce human capital.

The Role of Remittances in Developing Countries

The expansion of skilled workers in industrial countries has increased the volume of global remittances. Migrant workers send part of their income to support families in their home country. Formal or informal channels are used to transfer remittances. Formal channels include money transfer companies, banks, postal services and credit unions. Informal channels are difficult to document because the money is sent to the recipient via a third party such as Hawala in Pakistan. According to Ratha (2005), “Worldwide, officially recorded international migrant remittances are projected to exceed $232 billion in 2005, with $167 billion flowing to developing countries” (para. 2). In addition, the flow of emigrants to developed countries is proportionally related to the remittances. According to Brown (2006), “Remittances in developing countries have increased from $31.2 billion in 1990 to an estimated $166.9 billion by the end of 2005” (p.57). Supporters believe remittances are major contributors to an individual’s income in developing countries. They reduce poverty by improving living and economical standards.

Furthermore, remittances exceed all monetary assistance in developing countries. According to Brown (2006), “One third of all developing countries’ remittances exceed all capital flows…foreign aid and grants as well as private portfolio capital” (p.58). Notably, the Caribbean has the highest emigration rates, and the fastest growing remittance receipts. According to Mishra (2006), “In 2003, remittances flows exceeded combined flows of foreign direct investment (FDI) and official development assistance (ODA) to the region” (p.11). In many countries remittances are more stable than private flows and investments. This is especially evident in small islands, where remittances are an important source of income.

In poor households, remittances are vital to improving living standards. They finance the purchase of food, housing, and land. Remittances facilitate long term growth through capital investments. This could be the purchase of land for farming crops for exportation or funding the education for a family member. Both scenarios have long-term benefits for developing countries’ economic growth.

Diaspora Communities and Development

Tertiary-educated immigrants contribute to the development of their home country through advanced skills and investments. Notably, the Indian diaspora maintained a prominent presence in skilled professions such as medicine, engineering, and businesses. According to Pandey (2006), “Of the 18,250 expatriate IT professionals who entered the United Kingdom in 2000, 11,474 were from India” (p.71). The Indian diaspora was vital in developing India’s reputation in Silicon Valley. This was achieved by building relations with employers that allowed the development of IT industries in India. These relationships facilitate growth in many domestic outsourcing companies. Moreover they have higher income, which is directly attributed to employment in skilled professions. In 2004, “1.7 million members of the Indian diaspora were living in the United States…200,000 of these families were headed by millionaires, and the average median income…$60,093, substantially higher than the median U.S. income of $38,885” (Pandey, 2006, p.73). This human capital enables the Indian diaspora community to fund resources that are vital to the development of India.

What are the Effects of Absent Skilled Workers?

In developing countries, the health sector is most affected by the absence of highly skilled workers. The outflow of medical professionals is staggering. For instance, Ghana is experiencing one of the world’s extreme physician shortages. According to the World Health Organization, Ghana has only one physician for every 16,129.0 people and one nurse for every 1,388.9 (as cited in Kapur & McHale, 2005, p.26). The public health institutions are burdened by these shortages.

Furthermore, developing countries struggle to cope with the HIV/AIDS epidemic. Several sub-Saharan African countries such as Zimbabwe are badly affected by the deadly virus. According to Chikanda (2006), “The disease has increased the workload of health professionals and 58.4 percent indicated that they find caring for HIV/AIDS patients stressful, a factor that might result in patients getting poor quality care” (p.674). The remaining doctors and nurses have a heavier workload, which is a direct result of limited staffing. Infectious diseases can only become worse if the population has limited medical personnel.

Developing countries’ educational sector is affected by the amount of teachers available. In the United States, “10 to 15 percent of the estimated 200,000 teachers hired each year are foreigners, often from the Philippines and India; most are hired to teach math and science subjects in inner city schools” (Kapur & McHale, 2005, p.103). Moreover, the number of teachers leaving is astronomical, notably in Jamaica. Every year they lose their most qualified and experienced teachers. Jamaican teachers are recruited to meet the shortages of inner-city schools in the New York and London area. According to Kapur & McHale (2005), “More than 500 teachers left the Jamaican classrooms in 2001 to take up temporary assignments in host countries” (p. 103). Shortages in this crucial sector hinder the development of Third World countries.

What Is the Price of Lost Labor?

When the best and brightest leave after qualifications, their country receives little or no return on its investments. The Medical School at the University of Zimbabwe trains about 100 doctors every year. According to Chikanda (2006), the fact that “there was only an increase of 51 doctors over the four-year period shows the extent to which the international migration of doctors is occurring” (p.670). These losses are not confined to the individual, but most importantly, the affected country. Tertiary education is expensive. According to Asmal (2004), “Training a doctor costs in excess of R1 million ($152,000), and for the state to get no return on this enormous investment is a real problem” (para.6).

In addition, educated citizens contribute to the development of the economy through tax revenues. When skilled workers leave, educational subsidies become an expense for the government. Emigrants tend to default on their loans, which causes a debt in educational funds. This makes it difficult for the government to fund education for upcoming students. Along with human capital and labor, developing countries lose tax revenues. Educated citizens receive larger incomes that contribute to public expenditures. These tax revenues develop services such as the public health system.

Moreover, developing countries have resorted to hiring skilled workers from other countries. This recruitment can cost Third World countries millions in expenses. Mutume (2003) suggests, “African countries spend an estimated $4 billion annually to employ 100,000 non- African expatriates” (para.7). Hiring skilled foreigners burdens developing nations’ volatile economies.

Do Remittances Spur Development in Social Services?

Remittances are private funds and should never be equated with the development of a country. Remittances are sent from one family member to another. In the receiving country, it helps to purchase food and housing, which lowers an individual’s poverty level. Moreover, any remittances received through the loss of human capital go directly to the immigrants’ family not the country’s development. Remittances may fund the education of the recipient’s family members but if the manpower is lacking in these services, the effect is not advantageous.

Furthermore, long-term remittances create dependency among the recipients. They would rather wait on money from overseas than seek employment. This lowers the individuals’ incentives to work and eventually slows the fiscal growth of developing countries.

The outflow of tertiary-educated people leaving Third World countries is increasing. The most obvious consequence is the lack of manpower in certain crucial services. Every year “there are 20,000 fewer people in Africa to deliver key public services, drive economic growth, and articulate calls for greater democracy and development” (Sriskandarajah, 2005, para.3). The issues faced in developing nations due to the loss of highly skilled workers are growing. In many African countries, there is a small doctor-to-patient ratio. This creates a strain on the public health system. Of course, this will decrease the quality of care given to remaining residents. Labor shortages in medical services negatively impact public health services. These are important to society, especially to the poor.

The educational sector is greatly affected by the lack of teaching professionals. Teachers are recruited to fill inner-city gaps in the United States and London. However, children back home are left to suffer and thus their opportunity for learning is compromised. Developing countries resort to hiring workers from other countries to compensate for the loss. This is an expensive alternative for the government because the cost to hire workers from other countries often exceeds the country’s capabilities. Instead of compensating for the loss, this money could be spent on resources that could facilitate growth in other services such as infrastructure.

In some developing countries remittances contribute to the gross domestic product (GDP). For instance, Haiti is among the poorest countries in the world. Their remittances “have amounted to between a sixth and a fifth of GDP” (Kapur & McHale, 2005, p.146). In addition diaspora communities aid in developing their home country. However, remittances are temporary financial gains; they exist only when the recipients receive them. The long term effects of absent skilled workers are greater. In fact the loss of human capital only slows the country’s financial expansion. In addition, many remaining residents do not receive remittances. They depend on the services provided by the government. The outflow of labor to developed countries is a continual problem. It is essential that developing countries implement policies to limit the movement of their highly skilled workers. They are vital contributors in developing a country. Remittances can never replace the loss of scarce human capital.

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