1 Economic Viability of OFWs

Economic Viability of the Overseas Filipino Workers Lester G. Cavestany Ateneo School of Government Master in Public Management Professor Enrico C Mina, DBA Applied Economics June 17, 2011

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Table of Contents

Chapter 1 Modern-day Heroes ....................................................................................... 3 Chapter 2 The Sunny Side of Labor Migration ................................................................ 8 Chapter 3 The Dark Side of the Labor Force ................................................................ 15 Chapter 4 The Beginning of the End ............................................................................ 20 Endnotes ....................................................................................................................... 24 References .................................................................................................................... 25

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Chapter 1 Modern-day Heroes Our planet is filled with heroes, young and old, rich and poor, man, woman of different colors, shapes and sizes. We are one great tapestry CNN Hero of the Year 2009, Efren Peaflorida

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Kayo po ang mga bagong bayani! This was the message of President Cory Aquino to a crowd of Overseas Filipino Workers (OFWs) in Hong Kong in 1988 (Okamura, 1998). Since then, bagong bayani has become the OFWs privileged title - a title that is enjoyed by almost nine millioni OFWs in more than two hundred countries around the world. An OFW, also known as a migrant worker, refers to a person who is to be engaged, is engaged or has been engaged in a renumerated activity in a state of which he or she is not a legal resident.ii They are rewarded with relatively higher salaries in their jobsites. Its regarded as relative because often they are in countries where the costs of living are higher. Still, many manage to save money and more importantly, send money to their families in the Philippines. $18.76 billion was remitted in 2010 and this year, the country is expecting another 8 percent growth.iii And it is in remitting money, that the OFWs receive another title Economic Heroes! Mass-produced heroes It was during the time of the late President Ferdinand E. Marcos that the idea of labor exportation was conceived. With the help of then Labor Minister, Sen. Blas Ople and through Presidential Decree 442 also known as the Labor Code of 1974, the Marcos administration formalized the countrys labor migration program to help ease the worsening unemployment rates and to boost the nations dollar reserves which was badly hit by the oil crisis in the 1970s. (Banico, 2001) To ensure the careful selection of Filipino workers for the overseas labor market, as stated in the Labor Code, three government agencies were created - the National Seamen Board, the Overseas Employment Development Board, and the Bureau of Employment Services. In 1982,

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Marcos issued Executive Order 797 that consolidated the powers duties, rights, responsibilities, and functions of the three agencies into the Philippine Overseas Employment Administration (POEA), a new agency attached to the Department of Labor and Employment. (Pernia, 2008) President Aquino expanded the role of POEA in 1987 when she issued Executive Order 247, ordering the agency to respond to changing markets and economic conditions; and to strengthen the workers protection and regulatory components of the overseas employment program. And since then, POEA has been the government regulatory body for all matters that concern overseas employment for Filipinos. In an ideal world, and perhaps in many developed nations, the duties and functions of a government agency such as the POEA are not necessary. In fact, Article 7 of the Migrant Workers Act of 1995 clearly stipulates the phasing-out of the regulatory functions of the POEA. Section 30 states that migration of workers becomes strictly a matter between the worker and his foreign employer. But we dont live in an ideal world and ours is still a developing country. The reality faced by many of our countrymen who brave the challenges of labor migration, is one that still requires government monitoring and regulation, and even, intervention. In fact, when the government tried to implement deregulation measures, pursuant to the Migrant Workers Act, but there was a surge in the number of OFW grievances and cases of illegal recruitment. (Seung, 2009). So the deregulation of overseas labor policies was put on hold. And instead, POEA was further institutionalized, embracing its mission to facilitate the generation and preservation of decent jobs for Filipino migrant workers, and promote their protection and advocate their smooth reintegration into Philippine society.

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A viable economic solution vs an economically viable situation Since its inception, our countrys labor export policy has been a viable economic solution. With around 10% of the Philippine population working abroad, we can rest assured that about a quarter of the Philippine labor force is gainfully employed. The two charts below show the growth in overseas employment through the years:

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Aside from employment generation, our national economy continues to enjoy the benefits of having millions of so-called dollar earners who send money to their loved ones in the Philippines. Chapter 2 of this paper focuses on the effects of OFW remittances to the national economy. It is based on an e-mail correspondence with the Office of the Governor of the Bangko Sentral ng Pilipinas, with the approval of Gov. Amando M. Tetangco, Jr., who has been chosen twice by New York-based magazine Global Finance as one of the worlds best central bank governors. (CTB Supports Reappointment of BSP Governor Tetangco, 2011) Having focused on the economic gains of our labor export policy in Chapter 2, we shall then explore the flip-side of overseas employment in Chapter 3. The social costs and effects of labor migration should be discussed and brought to our attention. We shall explore some of the undesirable side-effects of OFWs that may put into question the viability of our labor export policy. With an understanding that economic viability means a positive net return or at least a balance in costs and returns, (Hulshof, 1992) we conclude in Chapter 4 with a concluding discussion in search of an answer to the question of what must be done by our government concerning our Overseas Filipino Workers.

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Chapter 2 The Sunny Side of Labor Migration Success always comes when preparation meets opportunity -Henry Hartman

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The most basic economic law of supply and demand explains why labor migration continues to rise in todays globalized world. In search of better opportunities, dissatisfied workers from developing countries seek and find employment in developed countries whose aging populations have brought about a high demand for an influx of a foreign labor force. The chart below shows the inflows of foreign workers into host countries.

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The United Nations International Labour Office estimates that in 2010, there are about 105 million migrant workers, including their family members, in the world. (2010) The next chart shows the top labor exporting countries in the world:

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Aside from the immediate benefits of filling the labor requirements of the host countries, foreign workers also help in their respective host countrys economy by becoming taxpayers and consumers of goods and services. And sometimes, due to the adventurous spirit of migrant workers, they also go into small businesses. Moreover, skilled and professional migrants boost the productivity and competitiveness of their host countries. This explains why they are offered citizenship or permanent resident visas in their job sites. However, it is not only the migrant workers and the host countries that are benefitting from labor migration. Evidently, the home countries of the overseas workers are also enjoying the economic fruits of their citizens labors. This is accomplished through the migrant workers simple act of remittance. Every dollar sent by each overseas worker to their relatives and friends in their home country has positive effects to the economy. As shown in the figure below, remittances received by developing countries provide valuable external funding, complementing foreign direct investment (FDI), private debt and equity portfolio, and Official Development Assistance (ODA).

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According to the BSP, remittances from OFWs help our national economy in the following ways: 1. Remittances increase the foreign exchange available in the system to fund the requirements of the economy. The increase in supply of foreign exchange provides more funds to buy imported materials such as oil, machinery, and other products. Adequate supply of foreign exchange ensures a healthy balance of payments position and a strong international reserves level. 2. Remittances tend to stabilize volatile movements in the exchange rate. This, in turn, contributes to price stability. 3. Remittances directly contribute to the finances of the beneficiaries. The

money is used to fund household expenses such as food, clothing, shelter, healthcare, and education. Spending for these needs, spurs consumption which, in turn, creates demand and bolsters domestic production and economic activity because it generates more demand for goods and services. The increased demand will push domestic production which will lead business entities and factories to hire more employees to produce more goods and render more services. This generates economic activity which leads to higher economic growth. 4. Alternatively, remittances can be saved in local banks. This means that more funds are made available to banks for re-lending to individuals or corporations to finance their needs or operations or even for investment in bonds or equities of publicly-listed firms. The increase in savings and investment, in turn, creates demand and also pushes domestic production and economic

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activity.

As demand for goods increases, manufacturers produce more

goods, which once again, helps generate employment and economic growth. Aside from investing in the bank, remittances can also be used as capital for business enterprises. 5. Remittances, indirectly and partly, contribute to finance government expenditures. As consumption is spurred due to increased financial

resources of the beneficiaries from remittances, supply is stimulated so that more jobs are created and factories built. This increases the potential taxpayers and tax-base consisting of individuals and corporations. The taxes collected from these individuals and corporations represent additional funds to the government for its infrastructure projects and social services such as school buildings, hospitals, roads, and bridges. Realizing the importance of remittances, it becomes clear to us as to why the government panics when militant groups campaigned for a No-Remittance Day. Government officials have described this as irresponsible and tantamount to economic sabotage. BSP Deputy Governor Diwa Guinigundo also admitted that non-remittance by overseas Filipino workers would have tremendous impact on the economy. As explained by BSP, the impact of the No Remittance Day could be quite significant given the number of workers deployed in the participating countries. Based on the data of the No Remittance Day done on the 2 and 8 March 2008 held in Hong Kong, Australia, Switzerland, and Middle East countries, the lowest transaction recorded during the month was US$32.7 million on March 12, 2008. However, this could not be viewed conclusively as the effect of the protest action since January and

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February 2008 also recorded transactions at US$32.9 million and US$36.4 million, respectively, which approximate those recorded in March. Nevertheless, should the protest campaign be held continuously at least once a month and participated in by all OFWs, the estimated reduction in the volume of transactions on a No Remittance Day would be about US$48 million which is the average daily OFW transaction for the first three months of 2010. If we take out the interruptions caused by the No Remittance campaigns, remittances are stable. In fact, remittances continued to rise during the Asian financial crisis at the end of the 1990s. They even sharply increase during economic crises because of the pressure on the migrant workers to send much needed financial assistance back home. Another reason for the surge in remittances during crises could be because migrant workers would like to invest in their home countries when prices are low due to the economic situation. (International Labour Organization , 2010) Even with the recent global financial crisis, the table below shows that remittances to the top 10 recipient developing-countries still increased. Developing Countries: 10 Largest Recipients of Remittances (in billion dollars) Country 2006 2007 2008 2009 2010 5-yr Average India $42 $26.90 $27 $45 $55.06 $55 China $35 $22.52 $25.70 $40.50 NA $51 Mexico $24 $25.60 $26.10 $25.10 $21.20 $22.60 Philippines $16 $12.70 $14.40 $16.40 $17.30 $21.30 Israel $16 $13.50 $14.40 $16.60 $20.20 NA Poland $11 $8.50 $12.50 $13.75 NA $9.10 Nigeria $10 NA NA NA $9.60 $10 Bangladesh $9 $5.50 $6.60 $9.00 $10.70 $11.10 Pakistan $7 $5.10 $6.00 $7.00 $8.70 $9.40 Vietnam $7 NA NA $7.20 $6.80 $7.20 Morocco $6 $5.10 $5.70 $6.90 $8.00 $6.40

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Chapter 3 The Dark Side of the Labor Force Pain, suffering, death I feel. Something terrible has happened. Yoda

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The economic heroism of the Filipino migrant workers is not without great sacrifices. Propelled by the search for better opportunities, our OFWs toil in a foreign land, away from the company of their loved ones and the comforts of their home country. Family before self The combination of an adventurous spirit and a martyr attitude has helped the Filipino migrant worker suffer through the hardships of working abroad. For the sake of their families, OFWs continue to work abroad and deal with the following issues: Language barriers OFWs are often forced to learn a foreign language Social differences they must adapt to unfamiliar, and sometimes

y y

strange, norms, cultures, laws and environments y Loneliness this can be due to the nature of the job site or the work environment but it can also be caused by racial discrimination y Higher cost of living since high-paying wages are often found in developed countries where the cost of living is high, migrant workers pinch pennies and take on extra jobs to meet their needs y Unwanted jobs due to the limited labor supply in developed countries, there is a high demand for workers who will do jobs that the locals dont want or cant do
y

Lower pay due to various reasons such as discrimination or market rates, some employers offer lower wages to migrant workers

Maltreatment being a foreigner exposes you to the threats of harassment and exploitation, and even human trafficking

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y

Lack of human rights the Philippines is a free country that affords its citizens many rights and privileges. This may not be the case in certain host countries.

Health risks There are a lot of OFWs who dont have adequate medical insurance from their employers and when they get sick in their job sites, they are left to fend for themselves. On a slightly different note, it is quite alarming that one out of every four Filipinos diagnosed HIV positive is an OFW (Gutierrez, 2010)

Social side-effects One of the main reasons that drives a Filipino to work abroad is to be able to be good provider for their families. But ironically, the breakdown of our families, including failed marriages, broken homes and troubled children, is caused by the absence of parents due to economic migration. The psychological and physical burden of the breakdown of the family greatly affects the three two six million children who are left behind by their fathers or mothers, or sometimes both, to attend to their work abroad. United Nations Children's Fund (Unicef)-New Yorks deputy director for programs Vanessa Tobin said that the absence of parents creates displacement, disruptions and changes in care-giving arrangement which can cause young children to feel neglected or abandoned and adolescents to be resentful. The myriad of problems can include children who are materialistic, less socially adjusted, academically poor, and vulnerable to abuse. (Rufo, 2009) To make matters worse, the feminization trend of labor migration has also affected the Philippine family structure. When the Philippines started exporting labor in

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the 70s only 12% were women. By 2002, 3 out of 4 migrant workers were women. (Sayres, 2003) This translates to more mothers who leave their families to earn a living abroad. This means we have more single fathers taking care of the children. Blue and White Concerns Foremost in our concern is the fact that highly skilled workers are being deployed every year by the tens of thousands. The figure on the right shows that in 2009, 22% of total departures involved skilled workers. The skills and training of the countrys professionals, primarily in the fields of education, health care, are sought after by many developed countries. Other white collar jobs in host countries in the managerial and technical sectors are also being filled up by migrant workers. Once again, this would have a positive effect on the remittances especially since these workers receive higher salaries compared to the less skilled migrant workers. However, the mass exodus of these professionals creates a jobs shortfall for these sectors in the home countries. This has aptly been called brain drain. (International Organization for Migration, 2005) On a positive note, professionals who return to their home countries for good contribute to what is known as brain gain. It is assumed that the home countries would benefit from the returning OFWs who would have most likely gained new insights and learnings in their respective professional fields. However, it should be noted that not all overseas jobs are white collar. In fact, The Philippines is a country known for its domestic workers. There have been a number of controversies in the past when dictionaries have defined a Filipino woman to be

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synonymous with a maid. (Kyodo News International, 1998) To some, this is insulting and degrading. But to others, especially the Filipina domestic workers themselves, this is nothing to be ashamed of - and the government couldnt agree more, especially since domestic workers contribute about $4 billion a year in remittances to the countrys coffers. Whichever way you look at it, a sad fact remains - migrants who work in the domestic service sector are the ones who are most vulnerable to abuse and exploitation. But there is hope for them. The International Labor Organization recently passed a landmark treaty that aims to give protection to an estimated 52.6 million domestic workers all over the world. This treaty would require signatory governments to ensure favorable working conditions and human rights protection to domestic workers employed in their respective countries. (BBC, 2011)

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Chapter 4 The Beginning of the End One sees clearly only with the heart. What is essential is invisible to the eye. The Little Prince

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In our aim to explore the advantages and disadvantages of overseas employment for our country and her citizens, both here and abroad, we noticed that the OFWs benefits and positive impacts are more quantifiable and justifiable. Presented with hard data and expert opinion on the value of remittance inflows, it is quite tempting to think that labor export is a panacea for our economic ills. Evidently, our migrant workers have helped the country stay afloat, even in rough economic waters. But this is only half the story. The OFW Phenomenon also has numerous negative effects that could have damaging long-term consequences to Philippine society. Personal sacrifices and family trade-offs abound as the pressure to earn decent wages pushes more and more Filipinos, of all ages and skill levels, to find work abroad. But unlike economic data, the effects of these sacrifices and trade-offs are not that easy to measure and evaluate. And if our government continues to turn a blind eye to the changes we need to make in our labor export policies, the millions of abandoned children of OFW parents will be forced to pay the price. Lest we see the destruction of the fabric of our society, a call is made to our government to do its Constitutionally-mandated duty to protect the Filipino family, as articulated in Art. II, Sec. 12, which reads, The State recognizes the sanctity of family life and shall protect and strengthen the family as a basic autonomous social institution. It shall equally protect the life of the mother and the life of the unborn from conception. The natural and primary right and duty of parents in the rearing of the youth for civic efficiency and the development of moral character shall receive the support of the Government.

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Heroes at risk Given the socially degenerative consequences of labor export, can we really expect our government to change its position and begin to deter Filipinos from economic migration? Can we expect the government to stop relying on migration to ease the local unemployment and underemployment pressures in our country? The law says Yes. Republic Act 8042 or The Migrant Workers and Overseas Filipinos Act of 1995 states that, While recognizing the significant contribution of Filipino migrant workers to the national economy through their foreign exchange remittances, the State does not promote overseas employment as a means to sustain economic growth and achieve national development. The law is clear that it does not promote overseas employment to achieve national development. So what must the government do? According to the BSP, the government should keep its promises of good governance and daang matuwid, in order to sustain the relative strength of the underlying macroeconomic fundamentals of our country. Our public officials should work on generating more employment and encouraging Filipinos to be more optimistic on the prospects of improved livelihood opportunities in the country. With strong macroeconomic fundamentals, investor

confidence in the country would increase leading to investment inflows. Honest and efficient government operations will likewise contribute to building a positive investor view of the country. This will eventually generate employment for those seeking work so that overseas employment becomes a matter of choice rather than the only option to the Filipino worker. In other words, if the government sustains growth and development in

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our country, then more domestic jobs and opportunities will be available for our people, which should then lessen the need to go to another country to earn money. The solution sounds simple, but we know it wont be easy to achieve the desired reults. And it will take time. So while were not there yet, our government must do everything in its power to protect the rights and promote the welfare of our Overseas Filipino Workers and their families. If our government cant do this for them, then it has no business calling our OFWs bagong bayani.

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Endnotes

Commission on Filipinos Overseas, Stock Estimate of Overseas Filipinos, as of December 2009 See Annex A Republic Act No. 8042 - Migrant Workers and Overseas Filipinos Act of 1995 Based on Data of OFW Remittances, Bangko Sentral ng Pilipinas.

ii

iii

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References
Banico, A. (2001). Caring while at risk: OFW phenomenon and its impact on the Filipino family. Retrieved May 13, 2011, from Migration and Development: http://www.migrationanddevelopment.net/research-publications/caring-while-at-risk-ofwphenomenon-and-its-impact-to-the-filipino-family BBC. (2011, June 17). ILO in domestic work rights push. Retrieved June 2011, from BBC News. CTB Supports Re-appointment of BSP Governor Tetangco. (2011, February 23). Retrieved June 2011, from Business World Online Edition: http://www.bworldonline.com/content.php?section=CorporateBulletins&title=CTBSupports-Re-appointment-of-BSP-Governor-Tetangco&id=26845 Gutierrez, J. A. (2010, December 12). UK OFWs raise concern over HIV/AIDS test. Retrieved June 2011, from ABS-CBN News: http://66.29.194.90/globalfilipino/12/11/10/uk-ofws-raise-concern-over-hivaids-test Hulshof, M. (1992). Sustainability. Costa Rica: Atlantic Zone Programme. International Labour Organization . (2010). International Labour Migration. A Rights-Based Approach. Geneva: International Labour Organization . International Organization for Migration. (2005). World Migration 2005 Costs and Benefits of International Migration. India: Academic Foundation. Kyodo News International. (1998, August 10). Philippines blasts 'Filipina' entry in Greek dictionary. Asian Political News . Okamura, J. Y. (1998). Imagining the Filipino American Diaspora: Transnational Relations, Identities, and Communities. New York, USA: Garland Publishing. Pernia, E. M. (2008). Is Labor Export Good Development Policy? 3rd AC-UPSE Economic Forum (p. 22). Makati: UP School of Economics. Rufo, A. (2009, September 25). Six Million Filipino Children Left Behind by OFW Parents. Retrieved June 2011, from ABS-CBN News: http://www.abs-cbnnews.com/pinoymigration/09/25/08/six-million-filipino-children-left-behind- ofw-parents Sayres, N. J. (2003). An Analysis of the Situation of Filipino Domestic Workers. Manila:ILO. Seung, M. J. (2009). Overseas Filipino Workers Activism and its Influence on Philippine Politics: a Case Study of the Overseas Absentee Voting Act of 2003. Master of Social Sciences Dissertation . Singapore: National University of Singapore Dept of Pol Science. Wikipedia. (n.d.). Remittance. Retrieved June 2011, from Wikipedia: http://en.wikipedia.org/wiki/Remittance