What makes employers seek to bypass the appropriate regulation when they choose to employ foreign workers?
It was fascinating to read the TIB response in the TBS on February 9 to my piece on what the fuss is all about on foreign workers. I could not agree more with the author's title: "Indispensable YES; non-compliance NO".
Indeed, all law-abiding citizens of any country must say NO to non-compliance. Question is exactly how we address non-compliance in a case like this.
At the outset, it is important to clarify an assumption which I am sure is shared by TIB as evident from the first part of their title. The contribution of the foreign workers, both legal and illegal, to the domestic economy exceeds the wages they are paid. Since private employers are voluntarily paying these wages over a protracted period of time, it sensible to infer that their private benefits from employing the foreign workers exceed the cost. This excess of benefit over cost is also a net social benefit since in this particular market there is no compelling reason to believe that private and social costs/benefits diverge.
What makes employers seek to bypass the appropriate regulation when they choose to employ foreign workers? If it were simply a matter of complying with the eligibility rules, a natural question is whether noncompliance is because the rules are too complicated to comply with and navigating through the regulatory process is way too cumbersome.
We get the answer from the TIB response: "illegal transactions including bribery prevail in various stages of interactions for relevant services. Collusive and coercive corrupt practices taking advantage of procedural complications, deficits of coordination, capacity and commitment of relevant officials have institutionalized illegality."
Indeed. There then are two ways we can address compliance.
One, through stricter enforcement of the work permit rules by cracking down on non-compliant workers and employers. TIB is looking forward to the Home Ministry's willingness to take "appropriate actions". If this is successful, by assumption, we will be getting rid of a lot of the "indispensable" workers and hence missing out their contribution to our national interest. Is this stance consistent with the TIB's diagnosis of the problem: procedural complications, deficits in coordination, capacity and commitment of relevant officials? The complexities are very well documented in the TIB report pages 12-16. There appears to be a cobweb of institutions involved in expatriate employment with more than one agency conferred the same mandate.
The other option is to incentivize compliance by simplifying the requirements, increasing transparency of the process and enhancing the capacity of the implementing agencies. In other words, reform the regulations to make them enablers towards serving the national economic interest. As we can make these rules, so can we change them when they become barriers in the operation and expansion of the economy.
The TIB report suggests that employers pay speed money (read bribes) to legalize their illegal foreign workers (page 16-17). This is equivalent to shifting noncompliance to a different sphere to be compliant with rules in employing foreign workers. Is this kind of compliance morally superior to the one where the foreigners are working without authorization as alleged in page 18: "A significant number of foreign nationals by-passes all the systematic procedures to get employed illegally with the help of the employer"?
Note that in both cases the root cause of noncompliance is that the rules (including their application) are not incentive compatible, neither from a private or social point of view. The best response in such a case is to strengthen incentives for compliance by having better designed and better administered rules. So, compliance – YES – but through regulatory reforms that will make it in the self interest of employers and the foreign workers to work legally in sectors where we need them the most. In this respect, the TIB recommendation for a "one stop service" (hopefully automated) to "provide services regarding visa recommendation letters, security clearances, work permits and visa extension to foreign workers" is spot on.
The TIB report raises more questions than answers on many issues:
"The employers are the main facilitators in the process of illegal employment of expatriates as it helps them employ competent foreign workers with a relatively lower remuneration package, since the employee avoid paying taxes" (page-18). "Both the employer and employee in collusion avoid paying taxes" (page-19). What prevents the locals from avoiding paying taxes using the same tactics that the expatriate workers do and thereby undo the advantage of the lower remuneration package for the similarly competent foreigner? The locals have the additional advantage of not requiring accommodation and transport services from the employers. Unless the employers suffer from fairly strong Xenophilia, there is no convincing argument based on tax evasion in the TIB report that can explain the employers' alleged preference for foreign workers.
The report goes on to claim in page 27 again, "tax evasion by the foreign nationals working in Bangladesh at the flat rate of 30% of income tax accounts for another US$ 1.4 billion potential revenue loss for Bangladesh". This assumes the expatriates pay zero taxes. How is it consistent with the information in Table-6, page 19 which says expatriates in Tax Zone 11 alone paid "BDT 181,00,00,000", equivalent to about $21 million, in 2018-19?
My point on tax evasions was that the unauthorized foreign workers cannot pay taxes even if they wanted to because of their illegal status. If the complexities associated with the work authorization process is addressed, it can no longer be used as an excuse for evading taxes. Yes, there still remains a private incentive to collude between the employer and the worker. Employers can agree to help workers evade taxes by under-reporting their salaries. But then they will be understating their labor cost and overstating taxable profits unless they can get away reporting different salaries for different purposes. Here also the root cause of the failure is in ensuring integrity of financial reporting.
The "probable minimum number of foreign nationals working in Bangladesh both legally and illegally is not less than 0.25 million. Consequently, the minimum amount of outward remittances is not less than US$ 3.25 billion per year" (page-27). This so-called minimum figure is derived by assuming that the typical expatriate working here consumes 30 percent of their US$ 1500 monthly earnings, "which makes the total amount minimum yearly earnings by all expatriates working here, around US$ 4.5 billion". How plausible is the assumption that a white collar high to medium skilled expatriate can live decently in Bangladesh spending just about Tk 39,000 per month? The employers must be paying the bulk of their living expenses for the expatriates to be able to live here! How do the employers afford such expensive labor and account for it in their books?
"Expatriates, mostly Indians, employed in Bangladesh, are not engaged in specialized jobs. Instead they are involved in ordinary administrative works, for which there should not be any dearth of Bangladeshi candidates." How do we square this statement in page 27 with the following in page-11: "Expatriates mostly work in production management, machineries management, quality control and mid-level management of the organizations. Many expatriates work in merchandising and buying houses. According to a senior official of the Metropolitan Chamber of Commerce and Industry (MCCI), Dhaka, expatriates hold top positions in technical and product manufacturing departments at the factories in export processing zones (EPZs). Some foreign nationals are also appointed as the managing director or a director in various industries." The two sound like "alternative facts", but both cannot be simultaneously true!
The report expresses grave concern about the extent of foreign nationals working in Bangladesh both legally and illegally. This "expatriate employment creates unfair competition for the local candidates" (page 27).
This reminds one of concerns raised elsewhere:
- Nigel Farrage said during the recent UK election campaign that there was a "flood" of labor coming into Britain "taking minimum wage jobs" and often undercutting British workers"
- When the U.S. Immigration and Customs Enforcement raided 680 immigrant workers in Mississippi in August 2019, killing 22 in the process, President Donald Trump applauded, arguing that it would deter undocumented immigrants from taking American jobs.
Most of the TIB recommendations listed in page 28 give primacy to the involvement of the Home Ministry and intelligence agencies, thus appearing to demonize the foreigners generally. Let us not criminalize the foreign workers. Just try to visualize the same problem from the point of view of "illegal" Bangladeshi workers abroad. That they exist in large numbers is evident from media reports on crackdowns against Bangladeshi workers in several GCC and East Asian countries. Furthermore, as reported in the Nikkei Asian Review (November 2019):
Migration "from Bangladesh has become politically explosive in India: nearly 1.9 million residents in the Indian state of Assam have been identified as possible illegal migrants from Bangladesh under Prime Minister Narendra Modi's tough nationalist policies."
While we must respect each country's prerogative to enforce compliance with their own laws, do we necessarily endorse such anti-foreign worker laws and sentiments in those countries? Don't we want them to revisit their laws and make them more hospitable so that our workers can find employment without being exploited by the intermediaries who take advantage of the existing legal stringencies?
Free international trade in labor is in our own national self-interest. Bangladesh's 7th Five Year Plan therefore rightly articulated the following stance on the issue of international migration (page 249): "In line with the recommendations of major international processes e.g. United Nations High-Level Dialogue on International Migration and Development (2013), the Eight Point Agenda for Action and the development of the Post-2015 Development Agenda and the Sustainable Development Goals (2016-30), Bangladesh is moving to integrate migration across the national development planning process. In particular, Bangladesh has been making pronounced efforts to enhance dialogue and cooperation in migration and development by hosting several high-level events, and assuming the Chairmanship of the Global Forum on Migration and Development (GFMD) in 2016. The adoption of the Overseas Employment and Migrants Act (2013) further reflect the political will to address migration and development interlinkages in a comprehensive manner."
Should we not practice what we preach?
Again, compliance YES, but through regulatory reforms, not crackdowns that are lose-lose for our economy as well as the foreign workers.