Policy Brief a bigger role to strengthen partnerships with destination countries to make overseas job ARMENIA: Better Understanding information more available and enhance development of job-specific skills. International Labor Mobility Maddalena Honorati, Florentin Kerschbaumer and Soonhwa Yi1 1. Migration and development June 2019 Armenia has experienced massive outflows of its people over years, amounting to 951,000 (the total Armenian migrant stock in Key messages 2017). Emigrants’ share of the Armenian population stood at approximately 32 - Labor migration offers opportunities percent in 2017, according to migration data for the unemployed, especially those in rural from the United Nations (UN). This is strikingly areas, and is likely to continue because an higher than the global average: immigrants expected wage differential between account for about 3.4 percent of the global destination countries and Armenia motivates population in 2017 (UN). youth to migrate. Half of Armenian emigrants reside in Russia (as - Members of migrant households are of 2017, according to the UN data). Other key more likely to be employed than those in destinations include the United States and non-migrant households, as the unemployed Ukraine. (Annex 1 shows the distribution of in migrant households have left for Armenian emigrants around the world). In employment abroad and, to some extent, recent years, outflows to Western and Southern Europe and the United States have increased remittances resulting from migration ease and declined to former Soviet Union countries. credit constraints in future investments. Recent migration is primarily temporary labor - Workers find overseas jobs primarily migration, unlike the permanent emigration through diaspora and family networks, that occurred in the 1990s. Workers go abroad which not only restricts their choice of for employment and return after their destinations (in favor, specifically, of Russia) employment terminates. Many surveys suggest but also can generate migration costs from much labor migration and remigration are skills mismatches and loss of skills that seasonal. The International Labour Organization challenge the successful reintegration of (2009) and Chobanyan (2013) noted that some returnees in Armenian society. workers make two to three migration trips every year. Migrants from rural areas, in particular, - The mix of costs and benefits follow this pattern, according to household associated with international labor mobility surveys conducted in 2015, 2016 and 2017 by suggests the Armenian government can play the Russian-Armenian University (RAU). Most 1 Social Protection and Jobs Global Practice, the World Bank. Contact the authors at mhonorati@worldbank.org and syi@worldbank.org. 1 temporary labor migrants are low-skilled—60 percent of current and returned migrants have secondary or lower education—and go to Russia (92 percent) where vast Armenian diaspora networks are in place. Remittances resulting from migration constitute important support to the welfare of households and the domestic economy. The World Bank estimates that remittances Source: RAU household migration survey data, 2015-17. . The amounted to $1.87 billion in 2018, equivalent to figure is based on a pooled sample of the three surveys undertaken 15.5 percent of Armenia’s GDP. 2 These flows each year during this period. constitute a significant share (35 percent) of Nevertheless, the effects of remittances and migrant households’ income (Figure 1). migration on labor markets are not fully Remittances support households’ current understood. One question is whether consumption, mainly of necessities, and remittantaces increase reservation wages of financing (Figure 2). More broadly, remittances remittance-receiving household members and contribute to increasing aggregate demand and thus discourage their labor force participation. A ultimately to reducing poverty (Karapetyan and second question is to what extent people incur Harutyunyan, 2013), although this effect is the costs to migrate. This includes a question on limited in rural and secondary city households to what extent returnees successfully (World Bank, 2017). reintegrate in the Armenian economy, which is Figure 1. Remittances account for about 35 percent of income in key to ensuring that the benefits of migration are migrant households, percent greater than the costs. As migration is likely to continue, such questions are still timely and relevant. The RAU survey data indicate that about as many people would like to migrate as are current first-time migrants. By and large, these individuals who expressed a desire to migrate tend to be in the economically active age group of between 15-39 and from households with moderate to poor financial condition. The desire to migrate is distributed equally across gender and Source: RAU household migration survey data, 2015-17. The figure educational attainment levels. is based on a pooled sample of the three surveys undertaken each year during this period. This policy brief aims to explore and address the Figure 2. Remittances support migrant households, current two questions about migration and its effects on consumption (use of remittances by migrant households), percent the labor market in Armenia. It uses data from the household migration surveys conducted by the RAU over the three-year period of 2015-17. 2 Remittances flows are on a recovery path, dampened owing to weak economic performance of Russia. 2 The brief describes the general landscape of employed in Armenia. A similar pattern is temporary labor migration and presents relevant evident in comparisons of wages of secondary- policy recommendations. education cohorts and male cohorts. Figure 5. Migrants earn higher wages than their counterparts in Armenia 2. Temporary labor migration People move for a better life. Migration is driven primarily by a desire for better employment opportunities and higher wages (Figure 3). Indeed, nearly half of the current and returned migrants (48 percent) were jobless in Armenia before they migrated. Among the reasons cited by female migrants were socioeconomic factors such as “unhealthy moral atmosphere in Armenia”. Household factors such as the number of children and the educational Source: RAU household migration survey data 2015-17. attainment of the head of the household also influence migration decisions (Annex 2). Figure 3. Difficulty finding a job and the low pay of jobs in Armenia Migrant networks facilitate migration by are among the reasons given for migrating abroad providing access to information, thus helping to lower the costs of migrating. Responses to the RAU household surveys showed that most migrants have family members, relatives or friends in the destination countries who helped them find jobs (32 percent of respondents), provided housing (26 percent) and helped finance their travel costs (12 percent). The presence of migrant networks influences the All current and returned migrants (percent) choice of destinations: half of returned migrants Source: RAU household migration survey data 2015-17. reported that they chose their destination Note: Family-related circumstances refer to “unification with relatives abroad,” “start a family abroad,” and because of the presence of relatives or friends. “other family circumstances”. Networks appear to enable poor households to benefit from labor migration. International Wage gains are the most important migration is costly. The international literature determinants of migration flows (World Bank, suggests that poor households are less likely to 2018). The RAU surveys found that Armenian participate in labor migration. The survey migrants who move abroad go to locations that responses in Armenia, however, suggest that offer higher wages than at home. The data most migrants are from households described as shown in Figure 4 suggest that, working migrants being in a “bad” financial situation to some did earn more in these higher-income degree. Approximately 30 percent migrants destinations than their counterparts earned at were from households in a “very bad” situation, home: their mean monthly wages were $500 33 percent were from households in a “bad” versus less than $250 earned by people situation and 35 percent were from households 3 in a “moderate” situation (Figure 6). This relatively high participation of poor households in labor migration might be attributable to the presence of those Armenian diaspora networks in destinations, especially Russia, that lower the costs of migrating. Figure 6. Many migrants are from households with bad financial situations (percent of current and returned migrants) Source: RAU household migration survey data 2015-17. There tends to be a clear sectoral division in migrants’ overseas jobs by education attainment (Figure 8). According to responses from the returnee cohorts in the RAU surveys, most low-skilled migrants had their jobs in the construction sector – account for nearly 70 percent of the returnee population, earning Source: RAU household migration survey data 2015-17. around $500 per month. Migrants with university or higher education mostly worked in Females seem to face greater barriers to the healthcare or education sectors in migration than males. Most labor migrants are destination countries. men, who make up 81 percent of the current and Figure 8. Selection of jobs by education level (the current and returned migrant population.3 This is a strikingly returned migrant sample) high percentage, given men and women expressed the aspiration to migrate in near- equal measure (Figure 7). The predominance of men in labor migration may be due to the negative perception about female migration (ILO, 2009). Male-dominant migration also raises concerns that it may leave the female-headed households in Armenia all the more vulnerable to poverty because women have lower labor market participation rates and lower wages (World Bank, 2016). Source: RAU household migration survey data 2015-17. Figure 7. Nearly equal shares of women and men express the desire to migrate (percent of respondents with the desire to migrate in the future) 3 Chobanyan (2013), analyzing various surveys population than do males (between 13 and38 conducted in Armenia, found that females account percent, depending on the sampled surveys.) for a far smaller share of the returned migrant 4 3. Effects of migration on labor force participation To determine the net effect of remittances and migration on labor supply is difficult, as substitution and income effects work in opposite directions. Outflows of the working population directly reduce the size of the labor force, and push wages upward. As a result, people increase hours of work and reduce leisure time.On the other hand, remittances, an additional source of non-labor income, increase the reservation wage of workers and lower the employment likelihood Source: RAU household migration survey data 2015-17. of remittance-receiving families. Such an income effect is seen in Jamaica, 4 , El Salvador, 5 and However, having a migrant as a member of the other Latin American countries.6. In sum, the net household is likely to increase the probability effect of migration and remittances on labor for labor force participation, when other supply is ambiguous. household factors are controlled. As Table 1 shows, the probability of working is positive and In Armenia, the labor market participation and statistically significant for households with inactivity appear rather indifferent to whether migrants. 7 One possible reason for this is that or not households have a migrant (Figure 9). the otherwise unemployed members of these Households with a migrant account of 34 households already migrated abroad. Another percent of working-age adults who are out of the possible explanation is that remittances ease labor force. Households without a migrant financing constraints in migrant households and account for a similar share, of 31 percent. subsequently boost their economic activities, as Correspondingly, their shares of the working-age was seen in the Philippines (World Bank , 2013). adult population that is employed are also Furthermore, outflows of male migrants would similar (46 percent of households with migrants boost female labor force participation. In Kyrgyz and 48 percent of households without migrants). Republic, the migration of a household member Figure 9. Households with or without migrants account for similar increases the choice of female household shares of the labor supply, (percent). members to be unpaid family workers and furthermore most of these left-behind females work more hours in their occupation (Karymshakov and Sulaimanova, 2017). Table 1. Having a migrant in a household is likely to increase the household’s labor force participation 4 Bussolo and Medvedev (2007) and Kim (2007). number of children in the household (positive) and 5 Acosta (2006). the number of elderly persons in the household 6 Acosta, Fajnzylber and Lopez (2008). (negative). 7 Other factors matter for the probability of working are education of household heads (positive), the 5 Variables Labor force participation rate gains from improvement in skills and financial HH with migrants 0.0653*** (0.0190) situations; 0 refers to deterioration in skills or HH Head education Basic school 0.108 financial situations, 0.5 to no or minor changes (0.141) and 1 refers to significant improvement. This General secondary 0.200 (0.134) method is similar to the methodology used to Pre-vocational 0.255 develop the services trade restrictiveness index (0.194) Vocational (college) 0.209 by the Organisation for Economic Co-operation (0.133) Higher education 0.285** and Development (OECD). (0.133) Number of children 0.0433*** The index includes four different cost (0.00987) Number of elderly -0.0449*** components. The first pertains to the costs (0.0137) incurred from having no job arranged prior to Number of observations 1,606 Notes: Standard errors in parentheses departure, with 0 denoting possession of a *** p<0.01, ** p<0.05, * p<0.1 written employment contract and full Source: Authors’ computation based on RAU Household implementation, 0.5 a promise for a job and 1 no migration survey data 2015-17. job arrangement. The second component relates to exposure to labor-protection violations. The 4. Costs of migration third relates to costs of jobs that are below the migrant’s qualifications and education Workers incur both monetary and non-monetary attainments. The fourth component relates to costs during the labor migration cycle. The very difficulties adapting back into Armenian society first monetary costs—so-called recruitment after return. costs— arise when workers start the employment process. Recruitment costs can be On average, labor migration is somewhat grouped into three major categories: (i) costs to costly, at 0.5 on the index (Figure 10). The cost comply with the laws and regulations of of having no written contract or job arranged receiving and sending countries, such as prior to migration tends to be high. This is obtaining work permits or medical check-ups; (ii) significant, given that more than half of returnee fees paid to recruitment agencies or agents for respondents reported that they left for the job information, applications and deployment destination on job promises (about 60 percent) procedures; and (iii) internal and international or without prior job arrangements (about 30 transportation costs. Non-monetary migration percent). On the other hand, the costs incurred costs are incurred due to differences in skills, from weak labor protection (such as late cultures, languages and religions (Yi, 2016). payments, unpaid overtime work and lack of health insurance) tend to be moderate. Female The RAU survey dataset does not contain migrants tend to incur slightly higher migration information that would allow monetary costs than their male counterparts primarily migration costs to be determined. This policy owing to leaving for foreign jobs without a job brief, however, uses qualitative responses of contract in their hands. Migration costs incurred returned migrants (returnee respondents) in the by the primary education cohort were least, survey dataset to build a migration-cost index while highest for the tertiary education group (Annex 3 presents the methodology). The indices because of skills mismatches. range from 0 to 1. For the cost index, 0 refers to Costs from skills mismatches appear to be least costly, 0.5 to moderately costly, and 1 greater for migrants with vocational or higher refers to the costliest. The benefit index includes education. On aggregate, costs from skills 6 mismatches appear to be moderate, albeit average, benefits from migration are somewhat widely dispersed. About 50 percent of the low (less than 0.2), as shown in Figure 11. It returnee respondents said they found their jobs appears that more than half of returnees with somewhat matched with their qualifications. But secondary or lower education attainment found experiences in this regard appears to vary widely that their experience abroad enhanced their according to the migrant’s education attainment skills to some extent, while more than 40 percent level. Nearly 80 percent of returnees with of those with vocational or university education vocational or university education reported that levels did not find their experience gave them a their job did not match their qualifications, competitive edge in the Armenian labor market. compared to 20 percent of respondents with Half the returnee respondents said they did not secondary or lower education. see improvement in their financial situations after returning, and that might lead them to The short-term nature of temporary labor remigrate. migration may explain the low costs incurred from reintegration. About 75 percent of Figure 11. Migration benefit index – average cost and returnee respondents reported they cost by component (2015-17) encountered no difficulties readapting after their return. Half of the returnee respondents had a job after their return. The main difficulty reported by returnees who had difficulties readapting was “work problems 8 .” This corresponds generally to the findings of empirical studies that low-skilled migrants have difficulties finding employment when they return home (for example, to Tajikistan). Figure 10. Migration cost index - average cost and cost by component (2015-2017) Source: Authors’ calculations based on RAU Household migration survey data 2015-17. 5. Policy recommendations Notwithstanding benefits of labor migration, challenges in migration remain. Challenge 1. Coupled with the shrinking working-age population and declining returnees, out-migration of workers in general reduces the size of labor force. Policy responses: First, leverage diaspora Source: Authors’ calculations based on RAU Household migration survey data 2015-17. resources to increase productivity, for example by providing the diaspora with incentives to Benefits of migration can be enhanced through transfer skills, knowledge and know-how and better skills matches and reintegration. On 8 Surveys do not further define “work problems”. 7 second, promote circular migration through Challenge 5. These exist returnees facing building skills, for example with joint problems with finding jobs. partnerships with receiving countries to provide Policy response: Work with receiving countries on-the-job training. to support reintegration of returnees, for Challenge 2. Its high dependency on Russia is a example by providing training in line with the risk. Migrants’ jobs and income are vulnerable to aspirations returnees had while employed economic conditions in Russia, as seen in recent abroad (as seen Korea’s Employment Permit years with the economic contractions resulting System, a low-skilled labor migration system) from continued low oil prices. and creating retraining courses that enable returnees to use skills acquired abroad. Policy response: Expand overseas opportunities by concluding bilateral labor arrangements and partnerships that target specific occupations. These can help Armenia build a competitive edge in the longer term, as seen in the Philippines that has received international reputations of qualified Filipino nurses. Challenge 3. Migrants leave without written employment contracts, which would increase the cost of migration. Policy response: Empower the State Employment Agency to build networks with diaspora communities, chambers of commerce, and embassies to collect information on demand in destination countries and publish it on a public jobs portal. Challenge 4. Migrants experience loss of their skills. Policy response: Develop a partnership mechanism with labor-receiving countries to retrain workers with skills acquired in Armenia. For instance, Ukrainian nurses or doctors could become qualified to be caregivers in Poland and Filipino or Indonesian nurses could retrain to become caregivers in Japan. Further policy responses would be to harmonize qualifications and skills standards, develop a joint training curriculum, create on-the-job training tailored to jobs in demand, and to build the capacity of staff in training centers. 8 References Acosta, P. 2006. Labor supply, school attendance, and remittances from international migration: The case of El Salvador. World Bank Policy Research Working Paper 3903. Acosta, P., P. Fajnzylber, and J. H. López. 2008. Remittances and Household Behavior: Evidence for Latin America. In: Remittances and Development, Fajnzylber, Pablo and Humberto Lopez, eds., The World Bank. Bussolo, M., and D. Medvedev. 2007. Do remittances have a flip side? A general equilibrium analysis of remittances, labor supply responses, and policy options for Jamaica. Policy Research Working Paper Series 4143, The World Bank. Chobanyan, H. 2013. Return Migration and Reintegration Issues: Armenia. CARIM-East - Consortium for Applied Reserach on Internaitonal Migration. International Labour Organization (ILO). 2009. Migration and Development: Armenia Country Study. ILO Subregional Office for Eastern Europe and Central Asia. Karapetyan, L. and Liana Harutyunyan. 2013. The Development and the Side Effects of Remittances in CIS Countries: the Case of Armenia. CARIM-East - Consortium for Applied Reserach on Internaitonal Migration. Research Report 2013/24. Karymshakov, K and Burulcha Sulaimanova. 2017. Migration impact on left-behind women’s labour participation and time-use Evidence from Kyrgyzstan. WIDER Working Paper 2017/119, UNU. Kim, N. 2007. The Impact of Remittances on Labor Supply: The Case of Jamaica. World Bank Policy Research Working Paper 4120, The World Bank. World Bank. 2013. Republic of the Philippines: The Impact of Migration and Remittances on Competitiveness through the Labor Market. World Bank. 2016. Armenia Country Gender Assessment. Poverty and Equity Global Practice. World Bank. 2017. Future Armenia: Connect, Compete, Prosper. A Systematic Country Diagnostic, World Bank. World Bank. 2018. Moving for Prosperity: Global Migraiton and Labor Markets. Policy Research Report. Yi, S. 2016. High migration costs for low-skilled migrants. Mimeo, prepared for the OECD. 9 Annex 1. Distribution of Armenians abroad (stock) Source: United Nations Global Migration Database, “International migrant stock: The 2017 revision”. 10 Annex 2. Determinants of migration (marginal effect obtained from a probit regression) 11 Annex 3. Methodology to develop the migration cost/benefit index This Annex presents the scoring methodology for calculating the migration cost/benefit indices for temporary labor migration of Armenians to Russia. It selects relevant variables from the migration surveys conducted by the RAU during 2015-17. These are composite indices that capture both migration costs and benefits. They assign a value between 0 and 1 where 0 refers to a low (low) migration cost (benefit), 0.5 to a moderate cost (benefit) and 1 to a high (high) migration cost (benefit). Values are assigned to each observation (that is, to each returnee respondent) of the RAU surveys. Table A.3.1 presents the relevant variables taken from the surveys and the ways in which scoring is assigned to each respondent. Table A.3.1. Scoring of migration costs and benefits to generate migration cost indices Assigning a value for a response Type Measure Relevant survey question 0 0.5 1 4.15. Did you have a preliminary Yes, a Yes, a promise Entry barrier arrangement/promise about work? written or No contract Yes, other Job 4.17 To what extent was it carried out? Fully or Was not Partially arrangement Mostly carried out 4.12. Did you have health insurance in Yes, Social that country? Yes, temporary permanent No protection insurance insurance during overseas Excellent 4.13. How was your health before Bad before Same or employment before leaving and at the time of return? leaving but Slightly worse Social leaving but excellent on than before protection bad on returning leaving returning Rather yes, or 4.26. Did the job match your profession? Yes, fully No Rather no Job-matching 4.27. Did the job match your cost qualification? Rather yes, or Migration Yes, fully No Rather no costs 4.22. Did you have a written working contract? Yes N/A No 4.30. What problems did you have connected with your work? Binary scoring Labor protection 4.30-1. Unpaid overtime work No Yes 4.30-2. Heavy working conditions No Yes 4.30-3. Undesirable work obligations No Yes 4.30-4. Salary delays/paid partially or No Yes not fully 4.31 During your work, have you been subjected to human rights violations or Binary scoring Human rights forms of coercion like these? protection 4.31-1. Debt bondage No Yes 12 4.31-2. Violation of security No Yes maintenance rules 4.31-3. Limit of movement No Yes 4.31-4. Seizure of documents No Yes 4.31-5. Physical/sexual violence No Yes 4.31-6. Involvement in criminal activity No Yes 4.31-7. Threat of being handed over to No Yes the authorities Yes, somewhat 4.46. Did or do you have difficulties Reintegration No or Yes readapting after your return? Not really 4.38. To what extent did your Didn’t professional knowledge and skills To some extent Significantly increase increase abroad? Skills 4.39. On the whole, did your trip To a certain improvement Gains contribute to your becoming more extent No Yes from competitive in the labour market of or migration Armenia? Not really Has improved Has Financial 4.45. How has your financial situation Has or improved situation changed since your return? worsened Has not significantly changed 13