Providing Portable Unemployment Insurance to Overseas Workers

According to the United Nations, three percent of the world’s population (191 million people) lived and worked outside their country of birth in 2005, either as permanent residents or guest workers. Overseas workers take many forms, have a variety of skills and come from different economic backgrounds.

They could be financial services professionals from Germany, working in the City of London. They could be nurses from the Philippines, providing health and residential care in the United States. They could be laborers from Pakistan, building Dubai’s desert fantasies. They could be ship workers from a variety of nations, operating stateless in international waters.

As with the relationship between Germany and Turkey, migrant workers often benefit their host country as well as their home country. Older nations in Europe and North America coping with the cost of a retiring older population benefit from the taxes and spending of younger immigrants. The cash that migrant workers send to their families back home may be small amounts for each family, but collectively they are huge.

The World Bank estimates that remittances from overseas workers were worth $283 billion in 2008. But in the wake of the financial crisis and economic downturn, migrant laborers and overseas contract workers were at the forefront of massive retrenchments and, as a result, remittances fell sharply in some of the world’s most remittance-dependent economies.

Large waves of returnees were reported, while other unemployed migrant workers stayed on in their host countries, competing for scarce jobs and potentially fuelling social tensions. Some unemployed workers with adequate savings may have fared well, but for most workers, the consequences of the crisis have likely been borne fully by them and by their
households.

Unfortunately, the majority of overseas workers fall outside formal unemployment insurance systems. In host countries, there are typically no mechanisms for guest workers to pay into an unemployment insurance system. Nor are migrant workers covered by unemployment insurance systems in their countries of origin. At the same time, a large fraction of migrant workers are undocumented workers and would not be covered by any social insurance system.

Following the crisis, host countries and countries of origin have an opportunity to consider how best to provide safety nets for their overseas workers. An appropriate unemployment insurance system would be an important step toward offsetting the devastating impact of the next economic downturn—whether local or global in scope—among overseas workers and their families. How should a portable unemployment insurance system be established and what are the key design features of such a system?