Managing Globalization: Costs of Exporting Labor

When it comes to exploiting the globalizing market for labor, few countries can beat the Philippines. Its millions of overseas workers have found jobs in almost every region of the world, and the money they send home helps to keep the domestic economy afloat. But does the Philippines depend on them too much for the country's own good?

Globalization has allowed Filipino workers to travel the world, but most head for the Middle East and the wealthier economies in East Asia: Hong Kong, Japan, Taiwan and South Korea. A recent interagency report put the number of Filipinos working temporarily overseas at more than three million - about 10 percent of the labor force. The total number of overseas Filipinos may be as high as eight million, according to the government.

According to the central bank, overseas Filipino workers, often called OFWs, sent $10.7 billion in earnings back to their families and friends in the Philippines last year - a whopping 12 percent of gross domestic product. Other countries get bigger shares of their income from abroad; in 2004, Nicaragua received 17 percent. But none of them are as big as the Philippines, which has about 88 million people. And none have gone to such lengths to export labor, by setting up a special agency that runs a welfare and pension program for OFWs and helps them to avoid illegal recruiting.

The money OFWs send home supplies hard currency to the government, which is useful for paying the interest on the country's debt. It also feeds several engines for investment, said Ernesto Pernia, a professor of economics at the University of the Philippines.

"Many of these overseas Filipino workers come from the provinces, and they are not really well-to-do, so they can build new houses or improve their existing housing," he said. "That's investment in the macroeconomic sense. And some of it will be going to small- scale enterprises. Also they go into education of children, so it's investment in human capital, which is also good for the long term."

There's also evidence that the money goes into straightforward consumption. Hunger is less prevalent in families with an OFW, said Moshe Semyonov, a professor of the sociology of labor at Tel Aviv University who has studied their households. There are also more major appliances and other expensive items in those homes, he said.

Semyonov said the entire social system in the Philippines has been rearranged around overseas work. Grandparents take care of children when their parents go abroad, and the children's social outcomes don't seem to suffer. "Some of them said, 'My chances to go to school or university really depended on having someone working outside.'"

But the prevalence of overseas work has risks, too. Studies of OFWs show that they are better educated than their counterparts at home, so the economy is being deprived of their skills. "Definitely you're losing high-qualified individuals," Semyonov said. "Most of the people have some higher education, they can speak English, and they experience some downward mobility."

Moreover, those highly skilled people tend to stay away for a long time. "Many of them, they come back and they go out again," Pernia, of the University of the Philippines, said. "They come back for a visit, or they come back at the end of the contract, and some of them go back - maybe go back to the same job abroad, or look for other jobs."

Worryingly, those who do come back don't always return with new skills. They've often taken lower-skilled jobs abroad than they had at home, because the pay was still much higher. College- educated Filipinos end up in manual labor or domestic service. "If it's a public school, primary school teacher who goes abroad to become a chambermaid, then that would not be upgrading of skills," Pernia said.

The OFWs may still be putting a hole in the country's pension system, too, despite the government's arrangements. "Many OFWs have stopped paying their retirement insurance, although the government has included this as part of the services provided in embassies abroad," said a former government official who now works overseas and spoke anonymously because of a confidentiality agreement with his current employer.

Because OFWs only contribute to the Filipino economy indirectly, the biggest problem could occur if the Filipino economy becomes dependent on them. Though the economy has been growing fairly quickly, the labor market is still patchy. The official unemployment rate was 8.1 percent in January, but underemployment - people who want to work more - was 21.3 percent.

Hence the government's push for overseas work. "Given the shortage of employment opportunities at the present time, I think the government is promoting it aggressively," Pernia said. "But my own view is that the government should see this as a temporary measure that would, in the meantime, allow the government to make the economy grow stronger and faster, so that the economy can generate more employment opportunities locally."

The former government official agreed. "Other social scientists have indicated that international migration has somehow eased the pressure of unemployment in sending countries," the official said. "This is more true of the Philippines than false. However, it has led to a number of reductions in national productivity, as those that have left form a sizable portion of the more productive elements of the population."

In the end, the question will be whether the Philippines can use OFWs' earnings to create more opportunities at home, Semyonov said. If it fails, he predicted, then the country will keep missing out on the best years of its most talented citizens' working lives.