Saturday, April 09, 2016

Kafala Reform Impact

The Economist has a useful summary of how reforms to the system of employer sponsorship of migrant laborers has improved wages and job mobility in the United Arab Emirates:
In late 2010, however, Saqr Ghobash, the UAE’s reform-minded minister of labour, issued a decree allowing workers with contracts expiring after January 2011 to look for work elsewhere after they had served out their contracts. Some employers grumbled, aware that this would raise the cost of labour...
They found that the impact of the new rule was big and fast. Workers’ real wages jumped by more than 10% in the three months after their contract expired, whereas before the change they barely moved at all.
Even though the reform made it easier for workers to change jobs, the fraction of workers renewing their contracts increased. More than twice as many workers did go to a new employer, but this was because far fewer of them left the country altogether after their contract expired. Over the first three months of the reform, the rate at which people returned home dropped by about four percentage points, from a baseline of around 12%. Workers’ original employers, Mr Naidu explains, were offering higher wages to persuade them to stay on, while higher overall earning power was keeping more workers in the country.
Unfortunately, these changes still do not affect domestic workers.

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