There are several possible changes in an economy on account of an inflow of migrants.
There is a drift towards the non-tradable sector. Specifically, any industry which uses the immigrant labour intensively (example bars and pubs) will realise an increase in their output. This will draw some labour and capital out of the non-petroleum exportable sector. This type of move would occur naturally on account of market forces and is a type of market failure as it has a negative externality impact on the current account balance.
Secondly, firms will change the intensity of their skills to absorb the Venezuelan immigrants. Unfortunately, because of the language barrier, many of these immigrants will fall into the classification of unskilled workers. In such a context, firms tend to adapt by using more unskilled labour and perhaps even changing the mode of production to a more labour intensive format. This can compromise learning by doing.
To support this, reference is made to the work of Giovanni Peri (2012) in The Effect of Immigration on Productivity: Evidence from the USA.
Peri found that the immigrants promoted the adoption of unskilled-efficient technologies. In another research effort, Gonsalez and Ortega (2009) in How Do Very Open Economies Adjust to Large Immigration Flows: Recent Evidence from Spanish Regions studied the labour market effects of a large inflow of immigrants into Spain between 2001 and 2006.
This study found that the growth of unskilled labour led to a change of skill intensity at the industry level.
The key industries absorbing the unskilled labour were retail, construction, hotels and restaurants, and domestic services. This is also similar to the finding of Ethan Lewis (2009) who in Local Open Economies within the US: How do Industries respond to immigration found that cities in the USA which received more of a particular type of labour increased their relative employment of that type of labour in the average industry by 80 per cent as much as the city-wide supply increase.
It is very possible that migrant workers can be willing to accept a lower wage rate than nationals in order to be able to obtain employment and this is reflected in the diagram.
The fall in wages from W0 to W1 and the rise in employment from L0 to L1 associated with an inflow of migrants is key as it increases the return to capital and generates an immigrant surplus.
In this regard by improving the return to capital, immigration provides an incentive to capital: either from domestic or from foreign sources.
In the long run, as the capital stock increases the K/L ratio improves and the initial decline in wages can be mitigated.
The great concern is the direction in which capital will flow. The state will have to guide this process carefully. If the state does not intervene and leaves the labour market policy in its current format, then the services and personal care sectors will continue to grow, and this can result in balance of payment problems as the economy moves forward.
The Table shows a comparative assessment of the natural gas factor boom and the labour market factor boom brought on by the inflow of Venezuelans (40,000 is assumed here).
With the natural gas factor boom, wages in the economy rose because of the resource movement effort and the spending effect. Imports into the economy increased as the real effective exchange rate appreciated.
With 40,000 immigrant Venezuelan workers, there is also a rise in imports as Venezuelans buy goods to send back to their home country. Some of these goods will no doubt be imported into T&T before it is remitted to Venezuela by the immigrants.
With the natural gas boom, there was an increase in the output of the goods that intensively used natural gas. Thus, ammonia production increased from 3,253,000 tonnes in 2000 to 5,532,000 tonnes in 2010.
Similarly, methanol production increased from 2,480,000 to 5,932,200 tonnes across the same time period. However, other non-booming tradable exports fell. In the TT economy case, there was a decline in non-mineral exports from $50.2 bn in 2012 to $28.3 bn in 2019.
With an immigrant “factor boom” if the production of non-tradable goods increases and pulls complementary skilled workers and/or capital out of manufacturing and other export-oriented sectors then this can compromise the non-petroleum export level of the economy. These trends in imports and exports can in turn compromise the overall current account balance.
Migrant workers tend to remit part of their income to their home country in the form of goods or in the form of US dollars.
This increases the demand for foreign exchange in T&T and reduces the already decreasing stock of reserves housed at the Central Bank.
Some considerations to help manage the migrant situation
As a start, we need to pay more attention to the minors of refugees. If this process drags on for three to four years, we may have a bunch of illiterate Venezuelan boys and girls as teenagers moving about T&T. This can make the management of the social fallout from the presence of these immigrants in our country much lower in the future.
Perhaps the state and UNHCR can work together with the Catholic church to provide some basic amount of educational support when the COVID-19 situation improves?
There is a need to promote English as a Foreign Language (EFL) training. This will help to ensure that those immigrants that are formally registered to work in T&T can better integrate into the economy. This may require them obtaining a very basic English as a foreign language permit to be able to work, similar to the PLEA (Point Lisas Energy Association) passport that the Energy Chamber promotes.
It is also necessary to extend COVID-19 testing to immigrants whether they are here illegally or not, as failure to do so may cause a spike within the country once again, should someone among the illegal Venezuelan community in this country, have the virus.