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Review of Policy on International Labor Migration Crucial

By: Leonardo A. Lanzona, Jr., PhD
Along with Mexico, the Philippines is one of the top migrant origin in Asia-Pacific Economic Cooperation (Apec). Furthermore, the country receives the highest remittance inflow in the region. Because of these reasons, the Philippines is considered a global model in managing international labor mobility. While this perception may have its merits, there are, however, certain weaknesses in the country’s labor mobility governance that need to be recognized and which a regional framework can address.
In the labor market, information problems have two main consequences on workers’ quality and their contribution to total output. First, since employment contracts rarely specify all aspects of the workers’ level of effort, employers cannot measure fully the productivity of workers on which their payments are based. If workers decide not to reveal their true productivity and if the workers’ efforts are unverifiable, employers face a moral hazard problem in setting out the proper wages. Second, because of worker heterogeneity, their potential productivity is unknown to the employer. Workers can then be misallocated to tasks and sectors. This may lead to adverse selection, if the average wage rates offered drive out the more productive workers. While the moral hazard problem may be solved by adopting piece-rate or share-rate arrangements, employers can only mitigate the second problem by distinguishing the workers through their characteristics. With this process, the workers with more experience and exposure in the market will be preferred. Consequently, the supply of workers who do not have these qualities, such as the women, may be reduced, and their wages may be lower.
Asymmetric information, as the adjective indicates, refers to situations in which some worker in a transaction possesses information which employers involved in the same trade do not. This rather self-evident assumption has, nevertheless, revolutionized modern economic thought since the 1970s. Take, for example, one major result in the economics literature, the first fundamental theorem of welfare economics and the Modigliani-Miller theorem. The first welfare theorem states that in a competitive economy with no unintended consequences, wages would adjust so that the allocation of resources would be optimal in the sense where nobody is made worse-off. A key assumption for the theorem to hold is that the characteristics of all workers in the country of origin should be equally observed by all employers. When such assumption fails to hold, i.e., when information is asymmetric, wages are distorted to account for the uncertainty and do not achieve optimality in the exchange. Standard government interventions, such as regulation of workers to limit unwanted migration, or subsidies to alleviate the effects of adverse consequences, are no more sufficient to restore optimality.
Read the full article at http://www.businessmirror.com.ph/review-of-policy-on-international-labor...