Labour Migration and Economic Growth in East and South‐East Asia

• Date: 01 January 2017
• Author: Terrie Walmsley,Angel Aguiar,Syud Amer Ahmed
• DOI: http://doi.org/10.1111/twec.12334
• Published date: 01 January 2017

Labour Migration and Economic Growth

in East and South-East Asia

Terrie Walmsley

1

, Angel Aguiar

2

and Syud Amer Ahmed

3

1

ImpactECON, Boulder, CO, USA,

2

Purdue University, West Lafayette, IN, USA, and

3

The World Bank,

Washington, DC, USA

1. INTRODUCTION

THE East Asia and Pacific (EAP) region experienced sharp demographic changes between

1965 and 1990, with the declining mortality and fertility rates contributing to the rapid

economic growth of those times (Bloom and Williamson, 1998). While these rapid demo-

graphic changes are projected to persist in the future, their impacts will not be as generally

positive as they have been historically. The changing demographics of Asian countries will

create labour shortages in some countries, while other Asian countries will experience large

expansions in their labour force, with substantial economic impacts in all countries. Japan will

soon have declining economic growth rates, eventually reaching near-zero economic growth

in the 2040s (Komine and Kabe, 2009). China, Hong Kong, Singapore and South Korea are

now experiencing declining total fertility rates and will soon have ageing populations. Their

growth rates will continue at annual rates of 3 to 5 per cent until 2020, after which growth

will decelerate.

A well-managed labour migration strategy within the region thus has the potential to ame-

liorate impending labour shortages in some EAP countries, while providing an opportunity for

countries with excess labour to provide migrant workers who will contribute to the develop-

ment of the home country through greater remittance flows.

This paper thus examines the potential impact of increased migration on the East and

South-East Asian economies, in the light of these projected demographic changes. These

potential impacts are analysed using a global dynamic simulation model, with migrant labour

flows and remittances used to examine the impact of migration. The nature of both demo-

graphic changes and migration for individual countries and its effect on other countries justi-

fies the use of a global dynamic economic simulation framework that can account for the

factor and price changes that will arise from the substantial labour force change s induced by

demographic transition and migration.

2. LITERATURE REVIEW

a. Drivers of Migration

Contemporary theories of international migration across all disciplines (see Massey et al.,

1998) suggest that people move because of expected improvements elsewhere, where

improvements might include higher wages, employment, health and education. The Harris–

Todaro (1970) model of rural–urban migration explains the migration decision as being based

on expected income differentials between rural and urban areas. In this model, migra tion from

rural areas to urban areas occurs if the rural wage rate (i.e. the rural marginal productivity of

labour, MPL) is less than the urban wage rate (i.e. urban MPL) times the urban emp loyed-

labour force ratio (i.e. ratio of total employed to total employed plus seeking jobs in the urban

©2015 The World Bank The World Economy

©2015 John Wiley & Sons Ltd

116

The World Economy (2017)

doi: 10.1111/twec.12334

The World Economy

area). Conversely, migration from urban areas to rural areas occurs if the urban wage rate is

more than the rural wage rate times the urban employed-labour force ratio. The applicability

of this theoretical framework beyond urban–rural migration is supported by broader empirical

analyses of migration.

1

b. Economic Impacts of Demographic Change

Most analyses of the coming changes in Asian labour forces due to demographic changes

focus on the economic and socio-political implications of an ageing population, such as

financing and provision of social services (Nizamuddin, 2003; Ogawa, 2003), changing

inequality (Inoguchi, 2009) and international relations (Ezrati, 1997; Haas, 2007; Abidin and

Wong, 2009). The labour forces of China, South Korea and Singapore will begin shrinking

between 2020 and 2025, with the growth of many ASEAN labour forces also starting to

decelerate (JCER, 2007). This is especially disturbing in the light of what is known about the

contribution of favourable demographic changes to the high East Asian growth rates observed

in the 1965–90 period.

Bloom and Finlay (2009) find that for the period 1960–2005, the working age share

and labour force growth rates remain important contributors to Asian growth. In the case

of Singapore, for example, the labour force growth rate contributed to 2.21 per cent of

average economic growth between 1965 and 2005, with the growth of the working age

share of the population contributing to more than half of average growth in the period.

However, when the paper applies projected growth of the working age shares and popula-

tion to determine their contribution to future economic growth, it is found that with the

exception of Malaysia and the Philippines, the growth rates of all East and South-East

Asian countries become negative as a result of the demographic changes (column III,

Table 1).

Given the potentially large differences in labour force growth rates between countries

in East and South-East Asia, the migration of workers into countries that will soon experi-

ence declining labour forces from countries with rapidly expanding labour forces presents

itself as a potential response to the coming demographic transitions. Surprisingly, there

has been little policy discussion in East and South-East Asia about migration as a

response to demographic changes and potential labour shortages.

2

There have also been

few studies examining the potential impacts of a migration policy that allows for move-

ments of labour between Asian countries experiencing, or soon to experience, differences

in labour demand and supply.

Back-of-the-envelope estimates from Winters (2001) indicate that even modest liberali-

sation of temporary migration from the developing to developed economies can lead to

substantial global welfare gains. Hanson’s (2010) review of empirical analyses of the

1

For example, Pissarides and McMaster (1990) found that inter-regional migration within the UK

responds to changes in regional relative wages and to differences in employment opportunities. In the

context of international migration, Hanson and Spilimbergo (1999) explain that high wage differentials

between the USA and Mexico have traditionally been the cause of northern migration. However, they

also note that the surge of undocumented migration from Mexico during the 1980s is mainly the result

of the increase in the relative size of Mexico’s working age population and the greater volatility of

Mexican wages relative to the USA.

2

An exception is that of Japanese immigration reform allowing Nikkejin (migrants with Japanese ances-

try, primarily from Latin America) to live and work in Japan.

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©2015 John Wiley & Sons Ltd

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