Migrant Labor and Japan's Need for Pro-Remittance Policy
Michael R. Finstad (University of Southern California, USA)
The twentieth century will come to be known as the century of globalization. Interconnectedness among nation-states is undoubtedly the future of social, political, and economic affairs, and this generation is privileged to be witnesses of the many facets of life that globalization is having an impact. One of the most interesting aspects of this phenomenon has been rapid increases of international migration. The movement of people across borders has attracted much attention from scholars and policy makers due to the mutual benefits migration offers host, as well as home, countries. In the last few years, one of the hot topics of discussion has been migrant remittances. Migrant remittances are the transfer of money from a migrant to his or her home country, typically given directly to their family. Many believe that these transfers of money can be a useful resource for economic development. Among other things, poverty reduction and increased education levels have been correlated with remittances in many different regions of the world. The focus of this paper is to examine migration and remittance-giving trends in the East Asian region and show that migrant remittances contribute to positive economic development. In addition, encouraging these transfers through favorable policy measures can also be beneficial for the host country.
Remittance transfers are increasingly gaining the attention of the international community because, among other reasons, the flow of remittances to developing countries has risen to astounding levels. In 1980, the gross flow of remittances to developing countries was $18.4 billion US. In 2005, the total flow of remittances to developing countries jumped to almost $200 billion US. In many countries, remittance inflows are larger than Foreign Direct Investment (FDI), and represent a substantial proportion of national income. These transfers are a significant part of the global economy and their benefits are far reaching.
A World Bank Report from 2005 concluded that remittance income is highly correlated with poverty reduction and economic development. Specifically, the study found that, on average, a 10% increase in per capita official international remittances leads to, on average, a 3.5% decline in the share of people living on less than a dollar a day. Many international organizations such as the IMF, UN, and the OECD have echoed these findings regarding poverty reduction and migrant remittances. Moreover, other evidence suggests that remittances can be linked to increased education levels, as well as school enrollment rates. Clearly, this source of capital has a significant impact on economic and human development, and it seems that government policy will only enhance their effects.
Quite possibly, the countries that have benefited most from globalization are those located in the East Asian region. Many of these countries, i.e., China, India, Singapore, and Indonesia among others, have all experienced remarkable rates of growth in the last twenty-five years. Not surprisingly, migration among these countries is very prevalent, and remittances totaled more than $3 billion US in 2005. Table 2.3 gives the immigrant labor force population for selected host countries, and Figure 3.1 shows the proportion of migrants who brought home more than $3000 US on their last visit.
We can readily see that, while Japan has the lowest immigrant labor population, the amount of remittances from this country is on average much higher than the other host countries. This is due to the fact that Japan has the highest per capita income in this region, and is representative of the fact that the trends in migration are occurring from South to North, i.e., from developing countries to developed countries, where the incomes are not only higher but more stable as well.
Some have raised questions about a policy that encourages remittance giving, citing illegal activities or frivolous consumption as reasons to support their argument that this income does not contribute to positive economic development. As an example, in the case of North Korea, Japanese officials have justifiable concerns about problems like money laundering and financing terrorism, as this government has exhibited defiance for many years. Therefore, resolving these issues is crucial to the success of any pro-remittance policy. However, the claim that remittance income does not contribute to economic development is simply false. The evidence cited above, in addition to the plethora of data from other studies, clearly disproves this position and gives policy makers plenty of reason to encourage this type of behavior. Of course, policies need to be created properly, so as to discourage illegal activities and informal remittance transfers. But if this is done, then government policies can actually enhance their developmental effect. And while it may seem that a pro-remittance policy would only benefit the recipient country, the fact is that it can actually be mutually beneficial.
As a prime example of how a pro-remittance policy can be mutually beneficial for the home and host countries, we can look at Japan's imminent need for technically skilled labor. Like other developed countries, Japan faces the problem of an aging population. What this means is that as a large portion of their labor force enters retirement, firms will face a shortage of skilled workers to replace the retirees. As a result, some people believe that Japan will need to look outside their borders, to countries such as India, in order to fulfill this need. However, the competition for this skilled labor is fierce, because many other countries are facing the same type of labor shortages. A large share of these workers are going to the US where incomes are the highest, which means that countries like Japan must do more to gain a competitive edge.
This is one type of situation where a pro-remittance policy can be mutually beneficial. Indian migrants exhibit a high propensity to remit money back home for a number of purposes, including family assistance, funding religious and civic activities, as well as for investment opportunities. Thus, Japan may be able attract more Indian skilled labor by creating a pro-remittance policy. Such a policy could, for example, give tax breaks to migrants who send remittances back home to their family. Also, the Ministry of Finance could help by opening up competition among Money Transfer Operators (MTO), which are the (formal) means by which remittances are sent. These MTO's are usually banks or companies such as Western Union or Moneygram, and there is very few reliable international outfits to choose from. By allowing greater competition among MTO's, the Ministry of Finance can lower transaction costs and give migrants more options to choose from. In addition, this will also encourage more people to actually use formal transfer mechanisms rather than informal ones.
The need to encourage Indian workers is becoming increasingly necessary in Japan, especially with the NEETs and Freeters problem and an aging population. With migration trends and remittance transfers on the rise, there is no better time than the present to create a policy that helps facilitate migrant remittances. This can help Japan gain a competitive edge on other countries who are also in need of skilled migrant labor.
Clearly, remittances have a significant impact on development, and many are beginning to realize their potential benefits. However, creating a pro-remittance policy will require governments from the host and home countries to work together. While this may be difficult, the potential benefits from this cooperation could have lasting effects on individual families, as well as entire countries.
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2. World Bank Global Economic Prospects 2006: Economic Implications of Remittances and Migration International Bank for Reconstruction and Development/ World Bank, 2006, Chapter 4.
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