Economic Research Forum (ERF)

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

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.

Most read

Fair competition is needed to empower women economically in the Arab world

The participation rates of women in the labour market in Arab countries are the lowest in the world. This column argues that remedying the under-representation of women in the labour force is a social and economic imperative for the region. There are three dimensions for action to realise the potential of Arab women: amending laws and regulations; instilling fair competition in markets; and promoting the digital economy.

Arab countries are caught in an inequality trap

Conventional wisdom, based mainly on surveyed household income distribution statistics, suggests that inequality is generally low in Arab countries. At the same time, little attention has been devoted to social inequalities, whether in terms of outcomes or opportunities. This column introduces a forthcoming report, which offers a different narrative: based on the largest research project on the subject to date and covering 12 Arab countries, the authors argue that the region is caught in an inequality trap.

Recession without impact: why Lebanese elites delay reform

The survival of Lebanon’s political elites is highly dependent on the wellbeing of the economy. Why then do they delay necessary reform to avoid crisis? This column examines the role of politically connected firms in delaying much-needed economic stabilisation policies.

Competition laws: a key role for economic growth in MENA

Competition policy lacks the attention it deserves in the countries of the Middle East and North Africa (MENA), a region characterised by monopolies and lack of market contestability. As this column explains, there are many questions about the extent of anti-competitive barriers facing new market entrants in the region. What’s more, MENA’s weak overall performance on competition is likely to be hindering economic growth and the path towards structural transformation.

The Egyptian economy is still not creating good jobs

Growth in Egypt has recovered substantially since the downturn following the global financial crisis and the political instability following the 2011 revolution – but what has happened to jobs? This column reports the results on employment conditions from just released data in the 2018 wave of the Egypt Labor Market Panel Survey.

How Egyptian households cope with shocks: new evidence

Managing risks and reducing vulnerability to economic, social, environmental and health shocks enhances the wellbeing of households and encourages investment in human capital. This column explores the nature of shocks experienced by Egyptian households as well as the coping mechanisms that they use. It also examines the relationship between such risks and job formality and health status.

The future of Egypt’s population: opportunities and challenges

Egypt’s potential labour supply depends on the growth and changing composition of its working-age population. This column reports the latest data on labour supply and fertility rates, concluding that the country has a window of opportunity with reduced demographic pressures to try to address longstanding structural challenges for the labour market.

Egypt’s labour market: facts and prospects

An ERF policy conference on the Egyptian labour market in late October 2019 focused on gender and economic vulnerability. This column summarises the key takeaways from the event.

An appeal for Sudan’s future

Sudan today is on a knife-edge: it can evolve toward peace and democracy – or spiral into instability and violence. As this Project Syndicate column argues, vital and timely international assistance can make the difference between success and failure for the new government.

Domestic demand and competition: a new development paradigm for MENA

A lack of competition in domestic and regional markets is holding back development in the Middle East and North Africa. This column argues that the region and the international community must ensure that barriers to market entry and exit are eliminated, and that independent regulatory bodies at the national and regional levels help to promote domestic demand as the main engine for sustainable and inclusive growth.