Economic Research Forum (ERF)

Undocumented migration: Egyptian evidence of a long-term wage penalty

123
Does the legal status of temporary migrants have an impact on their earnings potential when they return to their home countries? This column reports research on Egyptians who have worked as undocumented labourers, often in Gulf countries. The results indicate that undocumented migrants experience a wage penalty compared with documented migrants on returning to Egypt.

In a nutshell

Ignoring the legal status of temporary migrant workers and its impact on their accumulation of human capital and future earnings potential is likely to lead to erroneous policies.

Evidence from Egypt indicates that undocumented migrants have lower-ranked occupations, lower earnings and lower savings while they are overseas.

Undocumented migration has a long-term negative impact on migrants even after they return to their countries of origin.

The rise in unauthorised migration in recent years has reignited public interest in immigration and its effects. It has also brought debate on the relationship between migration and economic development to the forefront. In a study co-authored with Jackline Wahba, we examine the long-term penalty of undocumented Egyptian migration.

Egypt has been a significant labour sending country since the 1970s. Although the largest boost to migration flows occurred after the 1973 war, when oil revenues quadrupled and Gulf countries started implementing major development programmes, Egypt has continued to experience regular outflows of its workers. To a large extent this has been triggered by labour shortages in the oil-producing countries of the Gulf and the increased demand for temporary foreign labour.

The majority of Egyptian migrants have gone to neighbouring countries: both to oil-exporting Arab countries (the Gulf states, Iraq and Libya) and to non-oil-exporting Arab countries (Jordan and Lebanon) to replace nationals of those countries who migrated to the Gulf. A small proportion of Egyptian migration is permanent in nature and destined for Australia and North America.

More recently, irregular sojourn and labour have become increasingly frequent among Egyptian migrants. Irregular Egyptian migrant flows to Europe, especially to Italy and France, have increased considerably in recent years, in the context of the post-revolutionary economic downturn. In addition, many Egyptians work as undocumented labourers in Gulf countries, which constitute a major destination for Egyptian migrants.

Research on the determinants and effects of migration on the countries of origin is not new. But these studies typically ignore one important dimension of migration: the legal status of migrants.

Although there is a substantial body of work on undocumented migration, the focus has always been on the impact of illegality on migrants relative to natives in the host country. But there have been few studies examining the impact on the origin country, which can be particularly important since many illegal migrants return, either because they are deported or because they planned on temporary migration all along.

Our research examines the long-term impact of the legal status of overseas temporary migrants. It studies the impact of return migration on the wage premium in Egypt, by disentangling the effects of legal versus illegal status of migrants.

We ask whether undocumented temporary migration has any impact on migrants’ human capital accumulation that persists after return. Temporary migrants might acquire skills due to their work experience abroad and hence earn higher wages compared with stayers on return. But whether all migrants, documented and undocumented, benefit from their migration experiences on return, is not straightforward.

On the one hand, if illegal status hinders the accumulation of human capital of undocumented migrants, the well-evidenced wage premium experienced by migrants on return might be contested, and we might expect that only documented migrants would benefit from their migration experiences.

On the other hand, the origin country’s labour market might remunerate the migration experience disregarding the documented or undocumented nature of migration. In other words, if the latter scenario applies, through a signalling mechanism, all migrants would benefit from their experience overseas, unconditional on the nature of migration and/or on the human capital accumulated abroad.

Analysing data from the Egypt Labour Market Panel Survey in 2012 and accounting for the selection into temporary migration and into the legal status of migrants, we estimate the effect of overseas illegal status on wages after return. We find that undocumented migrants experience a wage penalty compared with documented migrants on return.

Our results also suggest that there is neither a wage penalty nor a wage premium for undocumented migrants compared to stayers. We also find suggestive evidence that undocumented migrants have lower-ranked occupations, lower earnings and lower savings while they are overseas.

Our results contest the positive wage premium found in previous research, suggesting that it is conditional on the type of migration undertaken. More importantly, our findings are the first to show the long-term negative impact of undocumented migration on migrants even after returning to their countries of origin.

This research has important implications. Understanding the impacts of undocumented migration on the migrant and the origin country is paramount. Indeed, it is important to examine the potential costs and penalties of unauthorised overseas work and migration.

Furthermore, our study shows that the impact of temporary migration might depend on the legal status of migrants. Hence, ignoring the legal status of migration and its impact is likely to lead to erroneous policies.

Further reading

El-Mallakh, Nelly, and Jackline Wahba (2017) ‘Return Migrants and the Wage Premium: Does the Legal Status of Migrants Matter?’ by ERF Working Paper No. 1133.

Tags: , , , ,

Most read

Why the West got rich and the Middle East did not

Today’s rulers of the three largest Middle Eastern economies all look to religious authorities as a key source of legitimacy. Drawing on a broad sweep of historical analysis, this column explores what this might mean for the region’s economic future. One notable danger is that the types of people who would push for policies that promote long-run growth are excluded from the political bargaining table.

Why Turkish growth ended

Following a period of rapid economic growth, the Turkish economy has slowed significantly since 2007. This column argues that these economic ups and downs reflect institutional improvements in the aftermath of the country’s 2001 financial crisis, followed by an ominous slide in the quality of these economic and political institutions.

Implications of the current low oil prices for MENA countries

The current low oil price environment, in part driven by the US shale oil revolution, has important macroeconomic implications for the Middle East and North Africa (MENA). This column reports research evidence on its likely impact on both oil-exporting and oil-importing countries in the region.

Prospects for development with democracy in the Arab world

What are the prospects for democracy in the Arab world? This column expresses the hope that as conflict-afflicted countries embark on their programmes of economic reconstruction, autocratic institutions will not be re-established under the pretext of the need for a speedy and steady recovery. The optimal path of development necessarily includes robust growth, equity as well as democracy.

An agenda for reducing income inequality in the Arab countries

What can be done to reduce income inequality in Arab countries? This column explores issues of measurement as well as potential policy measures. It concludes by calling for a new multipurpose pan-Arab survey that would allow for an evidence-based decision-making process on the impact of proposed policies on poverty and inequality.

The United Arab Emirates’ dilemma

As energy-producing economies strive to reduce their reliance on oil revenues, they must strike a balance between the competing demands of fiscal sustainability and steady growth of the non-energy sector. This column outlines how the United Arab Emirates is addressing this challenge.

Freedom for women is crucial for economic progress in MENA

The Middle East was once the cradle of civilisation: can it prosper once again? Looking back at lessons from the European Enlightenment, this column argues that if the region wants to advance economically, it needs to advance in terms of its treatment of women. Female agency is central to understanding the West’s technological leadership of the past two centuries.

Inequality in higher education: Egypt, Jordan and Tunisia

Attainment of higher education is strikingly unequal in Egypt and Tunisia, and a little less so in Jordan. This column reports research showing that in all three countries, family background is the primary driver of inequality. Particularly in Egypt and Tunisia, public spending on higher education is regressive, with the result that what purports to be a meritocratic and equitable system in reality perpetuates inequality.

Oil exporters’ responses to the US fracking boom

What are the implications of low oil prices for the economic and political stability of Arab oil-exporting countries such as Saudi Arabia? This column explores the impact of the US fracking boom on Arab oil revenues – and how policy-makers in these countries should respond.

Pension reform that avoids harming MENA labour markets

To tackle the deficits in their pension systems, should governments in Arab countries raise social security contributions, reduce pension levels or increase the statutory retirement age? This column summarises the results of research assessing the costs and benefits of different pension reforms in terms of their impact on different generations and on the labour market.