(DP 1984-02) Overseas Employment Policy and Remittances

Abstract

The paper reviews government policy on overseas contract workers and analyzes their remittances. Overseas employment has continued its upward trend up to the end of 1983 when the number of applicants processed for departure by the Philippine Overseas Employment Authority reached 444,208 as compared to 36,035 in 1975. The number currently employed abroad is estimated to be between 600,000 and 700,000. They have contributed about 1/6 of 1983 foreign exchange earnings and in reducing the unemployment problem. Government policy consists of trying to increase remittances and protecting the workers from fraudulent recruitment practices and poor or unfair employment conditions. The newly reorganized Philippine Overseas Employment Administration has made good progress in the recruitment procedure. But it still has to institute an effective staff and mechanism for assisting the workers in their place of work. Faced with serious BOP deficits and heavy debt servicing, the government imposed mandatory remittance rates of 50 to 70 percent. This appears not to have been successfully implemented. Consumption saving, portfolio choice and demand theory is applied to remittance behavior. The overseas worker is assumed to face a broader set of choices since he, jointly with his family, operates in both the domestic and foreign markets for goods and assets. The relative prices, yield and risks would determine the allocation of his foreign earnings to foreign purchases of consumption goods and assets and foreign exchange holdings and domestic purchases. Some policies negatively affect the relative prices, yield and risk explaining the smaller rate of remittance than the mandatory rates. Using the POEA cross section data, the paper further analyzed the effect of socioeconomic variables on remittances.