- [Narrator] This is Qatar,
a tiny country on the Persian Gulf
with immense domestic wealth
thanks largely to its reserves of fossil fuels.
Recently, it has been widely discussed
due to hosting the 2022 Football World Cup,
but Qatar has many more reasons to be the talk of the town,
especially for economists.
It is one of the richest countries on the planet
in terms of GDP per capita
with the average Qatari resident
producing $61,000 worth of output in 2021.
And despite its small geographic size,
its population exploded in the 21st century
from around 650,000 inhabitants in 2000
up to more than 2.7 million inhabitants in 2022.
This massive increase was due to the large inflow
in migrant workers,
mostly young men from India, Nepal, Bangladesh,
the Philippines, Indonesia,
and a host of other undeveloped or developing economies.
The situation of the migrant workers in Qatar
has been covered extensively in the media around the globe
prior to and during the World Cup.
Countless articles explained the plights of the young men
who went to work in Qatar
with thousands of them tragically never making it back home.
The terrible conditions these workers are forced to endure
halfway across the world from their homes
means that there must be a very strong force
compelling them to keep coming back to the desert.
The money these workers can make,
while insignificant to a lot of us in advanced countries,
can have huge impacts
on their families' way of life back home.
Even beyond this,
the collective earning power of these workers
can change the entire economies of their home countries,
but not always in a good way.
From an economist perspective,
Qatar gives us an excellent case study
to analyze the reasons for migrant labor
as well as the ramifications for the home countries
and the host countries.
This is a much bigger issue than you might think.
Migrants already make up
an estimated 5% of the global workforce today,
and as the world becomes more connected,
that number is only going to increase.
So there's a very good chance that your home country
is also affected one way or another.
Labor migration is no new phenomenon.
It can be seen throughout human history,
but with almost 90% of its population being non-citizens,
Qatar is in a league of its own.
So what are the positives
that migrant labor can bring to the workers' host countries
and home countries?
What are the economic drawbacks
that those countries should be aware of?
And is there a way to manage this process
to avoid these problems
and make conditions better for the people
actually doing the work?
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Qatar has the highest rate of migrant work in the world.
This is simply due to the limitations
in their factors of production
and their desire to build out infrastructure
to host businesses and tourism
long after their finite reserves of oil run out.
Qatar has the capital,
but not the workforce
to build infrastructure on a large scale.
This fact got even more apparent
when the country was selected to host the World Cup,
meaning seven stadiums had yet to be built
in the remaining 12 years.
Recruiting workers from abroad was the only way
to accomplish such an enormous endeavor.
Construction workers are not the only type
of migrant workers in Qatar.
Hotels, restaurant,
and public facilities all need staff as well.
At this point, we should also remember
that Qatar is also host to so-called working professionals,
highly skilled expats who work in all sorts of jobs
such as accounting, human resources, IT,
and marketing for various Qatari or international companies.
Therefore, we need to differentiate between high skilled
and low skilled immigrants
since they have very different effects
on the host countries.
One factor to consider is whether the immigrants substitute
or compliment the skills of existing workers.
In some countries,
migrant workers are substitutes for existing workers,
which creates competition
and leads to higher unemployment.
To give a more concrete example,
if many doctors come from abroad to a new country,
the supply of doctors will increase.
This reduces the wages
since some clinics have more doctors to choose from
when hiring.
In addition, if the number of positions does not increase,
local doctors might lose their jobs to the newcomers.
Now, this is typically what people are worried about
when it comes to immigration,
but assuming that this process is managed correctly,
skilled migration is very rarely a problem
because governments tend to only offer skilled visas
to people with the skills that their economy is lacking.
In Qatar, this is not an issue.
The labor demand is high,
hence expats are not threatening
the employment opportunities for locals.
In addition, immigrants often create new jobs.
Immigrants mean more residents in a country,
which in turn cause for additional doctors to be employed.
In Qatar, the huge influx in workers
created the need for housing
and other essential services,
which in turn created even more demand for expatriate labor.
This effect can turn into a benefit
for the local labor force
due to the subsequent growth of the economy.
The whole nation is better off by growing the pie,
which leaves more for everyone.
Whether migrant workers are a net positive
or negative on the wages of the native population
depends on the magnitude of these competing factors.
The native population of Qatar
has very few low skilled workers,
so it's likely that the complementary component dominates.
More migrant construction workers
means more demand for white collar managers
and engineers to work on on the projects as well.
While the system may be good for the economy as a whole,
what about the situation for the migrant workers themselves?
The conditions for the migrant workers
are reportedly challenging.
Witnesses describe poor working conditions,
cramped accommodation,
broken promises about pay,
and backbreaking work in above 50 degrees Celsius heat,
125 degree Fahrenheit for the Americans out there.
Given the harsh conditions,
why would anybody be willing to work in Qatar?
The obvious answer is money,
money or the promise to achieve a brighter future
for the family is a strong motivator.
Many developing countries face such severe poverty
that there is simply a lack of options for people.
Take Nepal, for instance,
one of the countries with the most workers in Qatar.
Nepal has struggled for decades
to provide meaningful opportunities
to large parts of its population,
particularly those who live in the countryside.
Trapped in poverty,
hundreds of thousands of those citizens
now look for work abroad every year instead.
The Nepali government estimates
that they are part of an ongoing exodus
that has seen more than 25% of Nepal's population
migrate to work overseas
since records related to such work
started to be collected in 1994.
Many workers send remittances home,
which the World Bank notes can help alleviate poverty
in low and middle income countries.
Remittances have been growing rapidly in the past few years
and now represent the largest source of foreign income
for many developing economies,
more than foreign direct investment or foreign aid.
For this reason,
some of these governments encourage their citizens
to work abroad,
resulting, for example,
in a formal working agreement between Nepal and Qatar.
It's hard to estimate the exact size of remittance flows
because many take place
through unofficial channels.
Worldwide,
officially recorded international migrant remittances
are projected to reach 630 billion US dollars
to low and middle income countries in 2022.
For Qatar, the latest value for 2021
is 858.7 million US dollars.
Unrecorded flows through informal channels
are believed to be at least 50% larger than recorded flows.
Remittances are especially important
for low income countries
and account for nearly 4% of their GDP on average.
Cross-country analysis generally find
that remittances have reduced the share of poor people
in a country.
In poorer households,
remittances made by basic consumer goods,
housing, children's education, and healthcare.
In richer households,
they may provide capital for small businesses
and entrepreneurial activities.
Remittances have real economic implications
for the sending and receiving countries,
but let's focus first on the benefits to countries
like India or Nepal where the migrants originate from.
The vast money inflow to poor households
has already been mentioned.
Remittances are a household to household transfer
directly benefiting the poorest strata of society.
And as we've discussed on this channel
many times in the past,
the poor have a higher marginal propensity to consume.
This principle refers to what percentage
of additional income one will spend
as compared to saving.
Imagine your government decides to give every citizen
a direct cash transfer of 500 US dollars
to cope with the increase in energy costs
due to the war in Ukraine.
Poorer households who struggle to make ends meet
are more likely to spend that money
on their daily living expenses
rather than putting it in their savings account
or investing it.
The opposite has been found
for the affluent members of society
whose daily needs are covered either way.
An increase in domestic consumption
is beneficial for the local economy
since there is a high demand for goods,
which helps local businesses and creates jobs.
It also increases the amount of taxes collected
by the government.
Even if the money isn't spent,
it's not all bad news.
Research finds that in countries
where the increase in remittances
is associated with an increase in investment
rather than consumption,
an even stronger positive relationship
between remittance and GDP growth can be observed.
Remittances can impact growth of an economy positively
by providing access to credit
as they can be used for collateral for loans.
Since remittance payments are expected to continue
even in the case of negative shocks to the borrowers,
they become a signal of reliability to the lender.
Beyond the cash received from remittances,
labor migration can also have a beneficial impact
on human capital.
Migrants returning from working abroad
are shown to have a higher propensity
for developing their own businesses.
They have been exposed to how businesses are run
in more developed countries
and can recognize trends within their home country
and create a company to take advantage of opportunities.
Economists are famous for using the phrase it depends
when asked a question.
This certainly also applies to the question
of whether remittances are a net positive
for less developed nations.
It depends on the circumstances
and certainly comes with several downsides
which are worth considering.
Labor shortages can occur
particularly when highly skilled workers leave the country.
Money transfers to the populations
which remained in the country
might also undercut the recipient's incentives to work.
If the amount of remittances
surpasses the recipient's expected earnings from work,
this external income flow
can discourage labor force participation,
induce voluntary unemployment,
and foster a culture of dependency.
Another very interesting effect can occur
on a macroeconomic level,
given that the flow of remittances is substantial
as compared to the size of the economy.
Large inflows in foreign currency
due to exports of resources
can cause a domestic currency to appreciate
and the exact same thing happens
due to the inflow of remittances.
If remittances are large,
the recipient country
could face real exchange rate appreciation
that may make its economy less competitive internationally.
Country's exports are less price competitive
since goods become more expensive to other countries
as the domestic currency rises in value.
This can snuff out domestic industries
of developing countries.
Let's look at a hypothetical example.
Suppose migrant workers from Nepal
send their earnings in Qatari riyals,
the Qatari currency, back home.
In Nepal,
the local agent in charge of the remittance
transfers the amount in Nepal rupees
to the recipient family of the worker.
In the process,
rupees had to be bought with the riyals,
which increases the demand for Nepali rupees.
If there is a high demand in a currency,
it appreciates,
which means it becomes more valuable
in relation to foreign currencies.
A strong Nepali currency makes it cheaper to import goods
and Nepalese citizens have more purchasing power
when traveling abroad,
but this also increases the prices of goods
produced in Nepal.
Suppose Nepal has a huge carpet industry
which employs a lot of Nepalese workers
and contributes to the public in the form of taxes.
The buyers of those carpets are situated mostly abroad.
Due to the increase in value of the Nepalese rupees,
these carpets will suddenly be more expensive
for those international customers
and will become less competitive.
Since the carpets from Bangladesh
and Myanmar are suddenly cheaper,
international customers will rather buy those,
then the Nepalese industry will cease to exist
reducing employment opportunities
and industrial output in the country.
This slowdown in domestic industry
will only work to make the country poorer
and ultimately more dependent on the money
that their workers earn abroad.
In the case of Qatar,
given the small size of their native population,
importing huge numbers of migrant workers
is the only option they had to expand their labor constraint
and diversify their economy away from oil and gas.
The Qatari economy is far bigger today
than it would've been otherwise because of migrant labor.
The large projects been built
with the help of migrant workers
also creates opportunity for native workers
to develop their skills and expertise,
helping to develop their human capital.
However, this economic boom has come at a huge human cost
and will continue to do so until such a time
that working in terrible conditions
halfway across the world
is not the best opportunity
that these people have to get out of poverty.
Unfortunately, the more a country's people
depend on working abroad,
the more they'll end up depending on working abroad,
which will only perpetuate this cycle.
Thanks for watching, mate.
Bye.