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Regulating the Business of Labour Migration Intermediaries

Contents

Introduction

1.1 Context and problem statement

1.2 Identification of research gaps

1.3 Purpose of the study and research questions

1.4 Concepts and definitions

1.5 Content and structure of the dissertation

Theoretical perspectives on LMIs and their regulation

2.1 New Institutional Economics and asymmetry of information

2.2 Critical theory – LMIs and the “commodification” of labour

2.3 Network theory and LMIs

Research design

3.1 Model of analysis

3.2 Methods

3.3 Hypothesis

Recruitment of a „borderless workforce“: trends and pattern

4.1 Global labour supply chains

4.2 Trends in labour migration

4.3 Trends in labour market intermediation

4.4 The price of having a job: abuse and exploitation by LMIs

4.5 The evolution of international norms to prevent exploitative and abusive recruitment practices

4.5.1 International norms on labour recruitment

4.5.2 International norms to protect migrant workers

4.5.3 International norms to criminalize trafficking in human beings

LMIs and their regulation: presentation and analysis of cases

5.1 Recruitment and migration from South Asia to the Middle East

5.1.1 Overview

5.1.2 Regulatory models

5.2 Migration flows and labour recruitment practices in East Asia

5.2.1 Overview

5.2.2 Regulatory models

5.3 Recruitment and sub-contracting of migrant workers in Europe

5.3.1 Overview

5.3.2 Regulatory models

5.4 Recruitment and labour migration in Africa

5.4.1 Overview

5.4.2 Regulatory models

5.5 Migration and labour recruitment practices in the Americas

5.5.1 Overview

5.5.2 Regulatory models

5.6 Summary of cases

Comparative case study: United Kingdom and Russian Federation

6.1 Regulating “gangmasters” and migrant labour in UK agriculture

6.1.1 “Shelves never go empty”: structural change in UK agriculture

6.1.2 Migration pattern and policies

6.1.3 The “gangmaster” system

6.1.4 Working conditions and exploitation of migrant workers

6.1.5 An unusual alliance: the Temporary Labour Working Group

6.1.6 The Gangmaster Licensing Authority and UK’s “light touch”on business

6.2 Regulating the recruitment of migrant workers into Russia’s construction industry

6.2.1 A magnet for migrant workers: Russia’s construction industry

6.2.2 Migration pattern and policies

6.2.3 Russia’s private recruitment industry and LMIs

6.2.4 Working conditions and exploitation of migrant workers

6.2.5 Prospects for regulation: entrenched positions and legal reform

6.2.6 Nascent forms of self-regulation

Interpretation of results

7.1 Trends in regulation

7.2 Comparative analysis of regulatory models (UK and Russia)

7.3 Conclusions and way forward

Appendix

List of figures

Figure 1: Typology of LMIs

Figure 2: Degree of abuse and exploitation related to the recruitment of migrant workers

Figure 3: Model of analysis

Figure 4: Models of statutory regulation and enforcement

Figure 5: Models of market regulation and enforcement

Figure 6: Models of voice regulation and enforcement

Figure 7: Models of regulation and enforcement relative to the degree of institutional density

Figure 8: Model to map key stakeholders

Figure 10: Labour supply chain

List of tables

Table 1: International migration stock by region and development level, 1990-2013

Table 2: Numbers of non-UK nationals and percentage of citizenship

Table 3: Estimated composition of temporary workers and their origin (labour user/labour provider)

Table 4: Estimation of irregular migrants in the Russian Federation

List of abbreviations

ABU

Association of Temporary Work Agencies

AKPP

Association of Consultants for Personnel Selection

ALP

Association of Labour Providers

APEC

Asia-Pacific Economic Cooperation

APSO

African Professional Staffing Associations

ASEAN

Association of South Asian Nations

BAIRA

Bangladesh Association of International Recruiting Agencies

BERR

Department for Business, Enterprise and Regulatory Reform

BIS

Department for Business, Innovation and Skills

BOESL

Bangladesh Overseas Employment and Services

BMET

Bureau of Manpower, Employment and Training

CAB

Citizens Advice Bureau

CAPES

Confederation of Associations in the Private Employment Sector

CEACR

Committee of Experts on the Application of Conventions and Recommendations

CIS

Commonwealth of Independent States

COMESA

Common Market of Eastern and Southern Africa

COMMIT

Coordinated Mekong Ministerial Initiative against Human Trafficking

COSATU

Confederation of South African Trade Unions

DWP

Department for Work and Pension

DTI

Department for Trade and Industry

EAS

Employment Agency Standards

EBRD

European Bank for Reconstruction and Development

EC

European Commission

ECC

European Economic Community

ECCAS

Economic Community of Central African States

ECOWAS

Economic Community of West African States

EHRC

Equality and Human Rights Commission

EPS

Employment Permit System

ETI

Ethical Trading Initiative

EU

European Union

EurAsEc

Eurasian Economic Community

Eurociett

European Confederation of Private Employment Agencies

FMS

Federal Migration Service

GCC

Gulf Cooperation Council

GCFTU

General Confederation of Trade Unions

GDP

Gross Domestic Product

GEFONT

General Federation of Nepalese Trade Unions

GLA

Gangmaster Licensing Authority

GLP

Good Labour Practices Programme

IALM

International Association of Labour Migration

ICFTU

International Confederation of Free Trade Unions

ICMPD

International Centre for Migration Policy Development

IFC

International Finance Corporation

ILO

International Labour Organisation1

IMF

International Monetary Fund

IOM

International Organisation of Migration

ITS

Industrial Trainee Scheme

ITUC

International Trade Union Confederation

JGATE

Jordan Garment, Accessories, and Textile Exporters Association

JITCO

Japan International Training Cooperation Organisation

LMI

Labour migration intermediaries

ME

Market Enforcement

MERCOSUR

Southern Common Market

MFA

Migrant Forum Asia

MOHA

Ministry of Home Affairs

MoI

Ministry of Interior

MoU

Memorandum of Understanding

MR

Market Regulation

NACTU

National Council of Trade Unions

NAFEA

Nepal Association of Foreign Employment Agencies

NAFTA

North American Free Trade Agreement

NAPTIP

National Agency for the Prohibition of Trafficking in Persons

NELM

New Economics of Labour Migration

NFU

National Farmers Union

NGO

Non-Governmental Organisation

NIE

New Institutional Economics

ODIHR

Organisations for Democratic Institutions and Human Rights

OECD

Organisation for Economic Cooperation and Development

OSCE

Organisation for Security and Cooperation in Europe

POEA

Philippines Overseas Employment Administration

PrEA

Private Employment Agency

QIZ

Qualified Industrial Zones

SADC

Southern African Development Community

SAWP

Seasonal Agricultural Workers Programme

SAWS

Seasonal Agricultural Workers Scheme

SE

State Enforcement

SNA

Labour Standards Foundation

SNCU

Collective Labour Agreement for Temporary Workers

SORAL

Syndicate of the Owners of Private Employment Agencies

SR

State Regulation

REC

Recruitment and Employment Confederation

RSPP

Russian Union of Industrialists and Entrepreneurs

TEBA

Employment Bureau of Africa

TFWP

Temporary Foreign Workers Programme

TITP

Industrial Training and Technical Internship Programme

TLWG

Temporary Labour Working Group

TUC

Trade Union Congress

UAE

United Arab Emirates

UK

United Kingdom

UN

United Nations

UNHCR

United Nations High Commissioner for Refugees

UNODC

United Nations Office on Drugs and Crime

US

United States

WAADI

Labour Market Intermediaries Act

WEC

World Employment Confederation

1 The acronym ILO can also refer to the International Labour Office, which is being used when referencing publications prepared by the Office, rather than international standards or guidelines which are adopted by the constituents of the International Labour Organisation.

Acknowledgements

The journey of this thesis began in 2007 and it was inspired by many encounters with migrant workers who graciously shared their stories, hopes and aspirations: Indonesian domestic workers in Hong Kong, Tajik construction workers in Russia, Mexican tomato pickers in the US and Nepalese garment workers in Jordan. While each story was different, they all had something in common – the intermediary. In each story, someone provided information, arranged visa and transportation, or canvassed the employer. In the course of my study and work, I also met many of those intermediaries and listened to their stories. I want to thank them all – unnamed migrant workers, government officials and labour recruiters because they helped me to understand and to ground my study in reality. I want to thank particularly my interview partners who generously shared their time and knowledge (see annexe).

This thesis accompanied a good part of my professional life at ILO, and I am very grateful for the opportunity to study and work at the same time – no matter how challenging it often was to combine both. It would not have been possible without the great support of my former and current Chiefs – Roger Böhning, Roger Plant, Kamran Fannizadeh and Moussa Oumarou. I thank them all. Thanks are also due to the many colleagues who kindly shared their knowledge and insights during the conception of this project, in particular Nilim Baruah, Carmela Torres, Natan Elkin and Thetis Mangahas. Special thanks are extended to Alix Nasri and Peter Swiniarski who worked with me on the ILO Database project under the Fair Recruitment Initiative and co-authored an ILO Working Paper, which benefited from and fed into this thesis.

My heartfelt thanks go to my supervisor Professor Elmar Altvater who always encouraged me through difficult times. His critical thinking inspired me to look at the “big picture” and to connect the dots between theory and practice. His death shortly after the completion of this project is a great loss to the academic community and people around the world who have been spurred into action by his thinking and writing. I also thank Professor Cilja Harders, who kindly accepted to be my second referee and who provided very useful feedback.

Throughout these years, my family supported and carried me. I thank them all – my husband first and foremost, my daughters, parents, sister and brother. Without their encouragement, it would not have been possible to complete this journey.

The responsibility for opinions expressed in signed articles, studies and other contributions rests solely with me, and the publication of this thesis does not constitute an endorsement by the International Labour Office of the opinions expressed in it.

Introduction

1.1 Context and problem statement

The global integration of national economies has increased the flow of goods, services, information, and, albeit to a much lesser extent, the flow of people across borders. While many skilled professionals found employment in new production zones and service centres, low skilled migrant workers struggle against entry barriers imposed by destination countries. Labour migration intermediaries (LMIs), such as labour recruiters, employment agencies and a wide range of informal intermediaries, promise jobseekers different ways to overcome these barriers. They have grown in importance by exploiting restrictions on labour mobility and situations of imperfect information between workers and employers in source and destination countries. They offer information about job opportunities abroad, organise transportation, facilitate money transfers and provide loans to finance migration. While informal networks play a crucial role, formal employment agencies are increasingly entering the market, hoping to benefit from the migration bonanza that the global integration of markets has created.

All across the world, however, reports about the abuse of migrant workers by unscrupulous labour recruiters are emerging in disturbing numbers. Almost every day, a listener or reader of global media will hear about cases of severe exploitation: Burmese migrants lured on board Thai fishing vessels against their will, Nepalese workers tricked and trapped on construction sites in Qatar, severely indebted Bangladeshi workers assembling computers in Malaysia, or Romanians working in Germany’s slaughterhouses under precarious conditions.

The tragedies unfolding in the Mediterranean and elsewhere at high Sea also point to the failure of existing migration and asylum regimes to respond to crises and to provide safe migration routes. The depletion of natural resources in many parts of the world, conflict, violence and war will push more people to leave their countries and communities searching for security and employment.

Most of them depend on smugglers who provide crucial information and transportation but may also treat human beings like cargo that can be abandoned and shoved around. Informal LMIs, including criminal networks, facilitate job placement in recipient countries, often illegally as long as refugees are barred from formal access to the labour market during their asylum procedures.

Forced migration as well as the reception and integration of refugees are complex issues to which this study cannot do justice. However, it is important to note that the border between labour migration and forced migration are often blurred, and LMIs play an important role in both migration contexts.

LMIs, whether they are legitimate or not, promise a way out of misery. They flourish in an environment where employment opportunities are scarce, where labour supply beats demand and where legal migration channels are limited. For many families, especially in the Global South, migration has brought relative wealth and higher social status. However, for some, the journey has gone terribly wrong, and where it did, it often started with an abusive labour migration intermediary.

The history books are full of stories about the forced and fraudulent recruitment of people against the backdrop of war, colonialism, and widespread destitution. People were bought and sold as if they were goods under the ancient institution of slavery, under colonial rule and with the emergence of indentured and contract labour under capitalism. Nevertheless, people also resisted their exploitation, and over the course of history, moral consciousness was changing too. The struggle towards the abolition of slavery and the transatlantic slave trade fundamentally altered the perception of what was morally acceptable and what was not. It was only a precursor to the emerging labour movement at the end of the 19th and early 20th century which claimed, “Labour was not a commodity”, a principle that later became enshrined in international norms. For a brief period in history, the services relating to the recruitment of workers were considered to benefit the public and profit-making recruitment agencies were banned from most countries. This period ended with the global restructuring of labour markets in recent decades and the introduction of flexible labour arrangements. Yet the protection of workers, in particular migrants, from exploitation and abuse remains a creed in international law and practice.

Considering the progressive strengthening of international norms related to the recruitment of migrant workers, reports of their continued exploitation are puzzling. The question is:

What makes it so difficult to set up a functioning regulatory system for international labour recruitment, which ensures that employers can find the workers they need and that workers are protected from abuse, especially those who are recruited across international borders?

The following research project emerged that seeks to blend theoretical and methodological reflections with empirical evidence and policy-relevant recommendations starting with this catalyst question.

1.2 Identification of research gaps

Labour migration intermediaries (LMIs) connect national labour markets by transporting millions of workers across countries and back again. Their astonishing growth and proliferation across the globe has prompted debates seeking for an explanation. As reports about fraud and abuse continue to surface, the search for regulatory options to limit the excesses of private labour migration intermediaries has also intensified. Yet the understanding of how LMIs operate, how they interact with different models of regulation, and how they are embedded in broader structures of production is still in its infancy.

In the late 1990s, researchers dealing with migration started to look at, what was then coined, the “migration industry”2, that is the web of brokers, moneylenders, transporters, smugglers and traffickers that connects employers and migrant workers across source, transit and destination countries. The specific role of LMIs in the labour market, in particular private labour recruiters, however, remained an under-researched subject. As one scholar described it: “if migration is the most under-researched of the global flows, the role of private agents is among the most understudied aspects of international labour migration”.3

A range of detailed empirical studies emerged in recent years, mostly describing recruitment practices in specific migration corridors. The majority of those studies analysed the role of LMIs from the perspective of migrant workers, thereby highlighting both negative and positive aspects of such services. The emphasis is usually on recruitment agencies and their regulation at source instead of destination countries of migration. The majority of those studies have focused on the recruitment of migrant workers from South Asia to the Middle East and from Mexico to the United States. Very little is known about labour recruitment practices and their regulation in other parts of the world.4

Despite this wealth of empirical and policy-oriented studies, the theoretical understanding of LMIs is still underdeveloped. There is a need to systematize and assess these empirical studies within a broader theoretical framework, which would explain the emergence of LMIs and their interaction with different regulatory models. While labour market intermediation has received growing attention in the economics literature the specifics of labour migration intermediation and its regulation have been studied less.5

Under a different body of research, scholars concerned with labour relations and labour market regulation have analysed the rise of labour market intermediaries and the evolution of employment relationships in industrial and post-industrial societies. Much of this research has focused on the organisation of work and production within vertically and horizontally integrated corporations.6 A sub-category of this research is concerned with human resource management, including skills development. Various studies have sought to understand the rationale of firms using temporary labour or outsourcing certain tasks or jobs. Other scholars emphasised the perspective of workers who are placed and employed by private employment agencies, the gendered fragmentation of work and evolving models of labour market governance. While this body of research sometimes makes explicit reference to migrant workers, LMIs are not their primary focus.7

This research project is situated at the intersection of migration research on the one hand and research concerned with the evolution of labour markets, employment relations and regulations, on the other. By connecting these different strands of research, this study aims to address several research gaps. First, the lack of a broader research design, which goes beyond the specifics of empirical cases. Second, the gap in empirical understanding with regards to the interaction between LMIs and different models of regulation. Third, the lack of focus on LMIs in destination countries as opposed to LMIs in the source countries of migrant workers.

1.3 Purpose of the study and research questions

The purpose of this study is to compare and analyse the interaction between LMIs operating in different migration corridors, and regulatory regimes that are aimed at limiting abusive and exploitative practices of LMIs. The aim is to draw policy-relevant conclusions from such comparative analysis, which are based on empirical evidence and informed by theoretical reflections on the role of LMIs and their regulation. The assumption is that abusive and exploitative practices are more likely to occur in low-skilled and labour intensive economic sectors. The study will therefore be limited to LMIs operating in those sectors, as opposed to executive search agencies (“head hunters”) or other labour market intermediaries operating within the highly skilled spectrum of the labour market.

The overarching question of this research project is as follows:

Which regulatory regimes are more likely to protect migrant workers against abusive and exploitative LMIs? Under what conditions do such regimes emerge?

This question can be broken down into three sets of sub-questions:

• What are the different types of LMIs and how do they operate within selected migration corridors?
What explain the emergence of LMIs, in particular those operating in lowskilled and labour intensive economic sectors? Which exploitative and abusive practices are used by LMIs?

• Which regulatory regimes exist at national and international levels?
How have international norms aimed at regulating LMIs evolved against the backdrop of growing labour mobility and labour flexibility? What are the main features of regulatory regimes in source and destination countries? To what extent do they conform to international standards?

• Following from the above, which regulatory regimes are more likely to reduce the exploitation and abuse of migrant workers during their recruitment process?
Under which conditions do such regimes emerge in destination countries (at the “demand side” of labour recruitment) and what impact could they have on the “supply side” of labour? What is the role of different interest groups (e.g. government, business, trade unions, non-governmental organisations) in shaping those regulations?

1.4 Concepts and definitions

The central terms and concepts used in this study are ill defined in international law. Various academic disciplines have attempted to define them but their use varies according to context. The purpose of this introductory section is therefore to provide some clarity on the use of the key terms. They are grouped together as appropriate.

Labour migration intermediary: LMIs are private or public entities that facilitate workers’ movement across international borders. There are many types of LMIs, such as individual labour recruiters, public employment services, and private companies offering job matching or financial services, criminal networks or philanthropic organisations. The focus of this study is on profitseeking LMIs who recruit and/or contract workers across borders. LMIs acting as labour recruiters provide specific services based on an agreement or contract established between the provider and the recipient of those services (typically the employer and the worker/job-seeker). They are brokers between demand and supply within international labour markets. Recruitment involves several stages: canvassing, testing, (pre) selection, placement, and in some cases, repatriation of workers. These stages can also involve ancillary services, such as document processing, medical tests, transportation, harbouring and transfer of workers to the premises of the employer.

LMIs can also act as labour contractors who recruit workers and make them temporarily available to a client enterprise, also called temporary work agency. Temporary work agencies or labour contractors are recruiters and employers at the same time. Workers thus find themselves in a triangular employment relationship: employed by a temporary employment agency, but working at the premises of an employer (the “client enterprise”) who contracted the agency. While many agencies can act as both labour recruiter and labour contractor, the focus of this study is on the former.8

(Forced) Migration/migrant worker/refugee: Migration refers to the movement of people across borders. According to the International Convention on the Protection of the Rights of All Migrant Workers and Members of Their Families, a migrant worker is “a person, who is to be engaged, is engaged or has been engaged in a remunerated activity in a state of which he or she is not a national” (Art. 2 (1)). Migration can also occur within countries, although it is not legally defined. It can involve crossing internal administrative borders or international borders within a common labour market (e.g. in the European Union).9

Migration can be voluntary or forced, regular or irregular. In the international context, irregular migration refers to the breach of immigration laws, including laws regulating the entry, residence or employment of non-nationals. Irregular migration is sometimes linked to smuggling, which involves the illegal transportation of a person across international borders.10 In some cases, irregular and regular migration amounts to human trafficking, which is defined further below.

Forced migration refers to the movements of refugees and internally displaced people (displaced by conflicts) and people displaced by natural or environmental disasters, chemical or nuclear disasters, famine, or development projects.11 Refugees are people who flee from conflict or persecution on various grounds as per Article 1 A (2) of the 1951 Convention and its 1967 Protocol relating to the status of refugees. Internally displaced people and refugees may also seek to enter the labour market of their new destination, but they are often prevented from doing by law or in practice. This means that they can only rely on informal LMIs, including criminal networks, for obtaining information and access to the labour market.

Exploitation/abuse/trafficking in persons (or human trafficking)/decent work: LMIs, like any other business operate along a continuum of compliance and non-compliance with regard to national and international standards on labour recruitment. This continuum’s extreme ends can be considered “human trafficking” on the one end and “decent recruitment for the purpose of decent work” on the other. At the core of the distinction between human trafficking and decent work is the concept of exploitation.

The concept of exploitation has been widely debated across various social science disciplines with different outcomes. There is a consensus that exploitation can occur within interpersonal relationships – which can be called “human exploitation” – or in relation to an object (e.g. natural resources) or species other than human beings. The focus here is on human exploitation.

Human exploitation involves any situation where someone takes advantage of someone else – someone exploits and someone is being exploited. This in itself may not be considered morally wrong; it can be based on mutual benefit and consent. Throughout most of human history, social relations have been exploitative, based on unequal access to resources, social status and different degrees of freedom.12

In the context of this present study, human exploitation refers to the exploitation of labour. From a Marxian point of view, exploitation is inherent to capitalist societies where workers are forced to sell their labour in order to survive, while the owners of the means of production (capitalists) pay them less than the full value of their labour. The capitalist therefore accumulates the surplus value of labour, which is called profit. In neoclassical theory, this is translated into paying workers less than the marginal product of their labour.13

Exploitation is enshrined in the concepts of human trafficking, forced labour and slavery but it also related to non-respect for international and national labour standards, such as unfair remuneration, long working hours and unsafe and dangerous working conditions. If combined with coercion and control over another person, substandard working conditions can amount to forced labour, human trafficking or slavery. Each of those concepts has been defined in various international instruments. Common to all of them are the notions of coercion, control and the vitiation of consent, such as through deception.14

From a legal perspective, the adoption of the UN Protocol to prevent, suppress and punish trafficking in persons, especially women and children,15 has spurred a fresh debate about the concept of exploitation. The Protocol does not offer a new definition. However, it contains an open-ended list of exploitative practices, to include “at a minimum the exploitation of the prostitution of others or other forms of sexual exploitation, forced labour or services, slavery or practices similar to slavery, servitude or the removal of organs” (Art. 3a). The other parts of the UN trafficking definition refer to the “the recruitment, transportation, transfer, harbouring or receipt of persons, by means of the threat or use of force or other forms of coercion, of abduction, of fraud, of deception, of the abuse of power or of a position of vulnerability or of the giving or receiving of payments or benefits to achieve the consent of a person having control over another person, for the purpose of exploitation” (ibid).

There is continued debate as to whether movement or migration are necessary elements of the definition of trafficking, or not, whether the definition of exploitation should remain limited or be extended and how to define the notion of consent. For the purpose of this study, trafficking in persons (or human trafficking) is situated at the extreme end of the continuum of human exploitation, referring to a process and to the means used to move a person into a situation of forced labour or slavery.

LMIs may be complicit in trafficking for exploitation by using various abusive and fraudulent practices. These are: a) charging recruitment fees to workers (which may lead to debt bondage); b) threats and intimidation, including verbal and psychological abuse; c) deception with regards to contracts, working and living conditions as well as failure to disclose relevant information prior to recruitment; d) restriction of freedom of movement; e) retention of identity documents to control workers; f) physical and sexual violence; g) recruitment of children below working age; h) recruitment of workers into hazardous and unsafe work.16 Such abuse and fraud are closely linked with exploitation.

The concept of decent work has first been developed by the ILO as an aspirational tool and as an umbrella term to encompass productive employment with fair wages, security at work, social protection, rights at work, including freedom of association and collective bargaining, social dialogue and the promotion of gender equality. The ILO has also developed a detailed framework of decent work indicators.17 Decent and fair recruitment practices (which are the opposite of those listed above) are further defined by separate ILO guidelines, which are discussed in chapter 4.5.

Regulation: Regulation is defined as a conscious and ‘sustained effort to create or limit rights, and to shape the conduct of individuals and collectives through a set of rules, norms and measures of enforcement. Rules and norms can contain positive and negative incentives to obtain the desired result’. They can be statutory, i.e. laws which are administrative decisions that are enacted by a legislative body or government authority and enforced by a government entity. This is often referred to as “centric” or command-and-control regulation.18 Alternatively, regulation can be voluntary or “mixed”, i.e. measures by an industry or business association, certification or labelling initiatives. They can also be the outcome of a collective bargaining process or other nonstatutory process of negotiation. Some authors have called this “de-centric or polycentric regulation” (ibid).

In particular, labour market regulations aim to protect workers through the formalization of the employment relationship, including labour market intermediation. Labour migration regulations determine the entry and exit of foreign workers, their access to the labour market, to education, trade unions and other institutions in the country of destination.

1.5 Content and structure of the dissertation

This study consists of three parts: the first part reviews major theoretical perspectives of relevance to this subject. This is followed by a presentation of the research model, which incorporates central tenets of institutional and critical theory. The model provides a typology of LMIs and a framework for analysing and classifying different regulatory approaches, which aim to change or constrain the behaviour of LMIs. The hypothesis seeks to correlate regulatory regimes with the degree of exploitative and abusive practices used by LMIs. The main method applied is a qualitative case study approach. Such an approach will test the hypothesis’s plausibility, but its empirical verification would be subject to further research.

The second part of the study starts with a desk review of existing data and literature about the growing importance of LMIs against the backdrop of labour migration and the global restructuring of production. The desk reviews also highlight manifestations of exploitative and abusive practices used by LMIs and the evolution of international norms to protect migrant workers from these practices. Based on this literature review, thirty countries have been selected from different geographical regions for further empirical analysis of labour recruitment and its regulation. The countries are situated along major migration corridors, and are either source, destination or both. The focus is in particular on labour recruitment in low-skilled economic sectors, such as agriculture, manufacturing, construction and domestic work. This empirical country review is followed by an in-depth comparative analysis of two destination countries of migrant workers, namely the United Kingdom and the Russian Federation. Each chapter will review the migration context and recruitment practices, and explain the factors that determined a specific regulatory regime’s emergence.

The third part of the study interprets the results, analyses the research model, and concludes with recommendations for further research and policy development.

2 The term “migration industry” was first used by John Salt and Jeremy Stein: “Migration as a Business: The Case of Trafficking”; in: International Migration, 1997, 35: 4: 467-494. Their focus was on profit-making individuals, agencies and institutions which can be legitimate (formal) or illegitimate (informal), also called trafficking. The terms was widely publicised by Castles, Stephen and Mark J. Miller: The Age of Migration: International Population Movements in the Modern World, Third edition, New York: The Guilford Press, 2003. See also following publication by Martin, Philip. Merchants of labor: Agents of the evolving migration infrastructure. Geneva: ILO, 2005; Massey, Douglas S., et al. Worlds in Motion: Understanding International Migration at the End of the Millennium: Understanding International Migration at the End of the Millennium. Clarendon Press, 1999. For further background, see: Spener, David: Some Critical Reflections on the Migration Industry Concept, Paper presented on May 29, 2009, at the Migration in the Pacific Rim Workshop, University of California, Los Angeles. See also a recent publication, which takes a much broader perspective on the concept of “migration industry”: Gammeltoft-Hansen, Thomas and Ninna Nyberg Sorensen (eds.): The Migration Industry and the Commercialization of International Migration, New York: Routledge, 2013.

3 Quoted in: Martin, Philip: Merchants of labour: Agents of the evolving migration infrastructure, Geneva, 2005: ILO (Summary page).

4 Many of those empirical studies were commissioned by international and other organisations more interested in policy responses rather than advancing a theoretical understanding of LMIs. See for example: IOM (Jones, Katherine): Recruitment monitoring and migrant welfare assistance: What works? Geneva, 2005; Rannveig Agunias, Dovelyin: Regulating Private Recruitment in the Asia-Middle East Labour Migration Corridor, Migration Policy Institute (August 2012), Kuptsch, Christiane (ed.), Merchants of labour, International Labour Organization, 2006; Andrees, Beate: Forced Labour and Trafficking in Europe: How people are trapped in, live through and come out, ILO Working Paper, 2008; Andrees, Beate, Alix Nasri and Peter Swiniarski: Regulating labour recruitment to prevent human trafficking and to foster fair migration: models, challenges and opportunities, International Labour Organisation, Geneva 2015; Verité: Help wanted: Hiring, human trafficking and slavery in the global economy; 2010; download at: https://www.verite.org/Reports/HelpWanted [accessed 20 July 2015]; Wickramasekara, Piyasiri: Regulation of the Recruitment Process and Reduction of Migration Costs: Comparative Analysis of South Asia, Global Migration Policy Associates, Geneva, October 2013; International Labour Migration Working Group: The American Dream Up for Sale: A Blueprint for Ending International Labour Recruitment Abuse, download at: https://fairlaborrecruitment.wordpress.com/report/ [accessed 20 July 2015]; Jones, Katherine: For a Fee: The business of recruiting Bangladeshi women for domestic work in the Middle East, ILO Working Paper, 2015.

5 See Martin (2005), op. cit. and Autor, David: The economics of labor market intermediation: An analytic framework, No. 3705, Institute for the Study of Labor (IZA), 2008. See also chapter 2 for a discussion of relevant theoretical approaches and their contribution to a better understanding of LMIs.

6 See for example: Peck, Jamie. Work-place: The social regulation of labor markets, Guilford Press, 1996; Ward, Kevin. "Going global? Internationalization and diversification in the temporary staffing industry" Journal of Economic Geography 4.3 (2004): 251-273; Theodore, Nik, and Jamie Peck. "The Temporary Staffing Industry: Growth Imperatives and Limits to Contingency" Economic Geography 78.4 (2002): 463-493; Peck, Jamie A., and Nikolas Theodore. "Temped out? Industry rhetoric, labor regulation and economic restructuring in the temporary staffing business" Economic and Industrial Democracy 23.2 (2002): 143-175.

7 For a review of the existing literature on temporary staffing see: Coe, Neil M., Katharine Jones, and Kevin Ward: "The business of temporary staffing: A developing research agenda." Geography Compass 4.8 (2010): 1055-1068; See also: Vosko, Leah F.: Temporary Work: the gendered Rise of a Precarious Employment Relationship, University of Toronto Press, 2000, Fudge, Judy and Kendra Strauss (eds.): Temporary work, agencies and unfree labour: insecurity in the new world of work, New York and London: Routledge, 2013.

8 See chapter 3 for a detailed description of services and a typology of LMIs. A legal definition of Private Employment agencies is provided in the ILO Private Employment Agency Convention, 1997 (No 181), Art. 1 (1). It encompasses recruitment and contracting services as outlined above. It also refers to other job-seeking related services.

9 For further information in internal migration see: UNDP: Human Development Report 2009: Overcoming barriers: Human mobility and development, download at: https://hdr.undp.org/sites/default/files/reports/269/hdr_2009_en_complete.pdf [accessed 23 July 2015]

10 Gallagher, Anne and Fiona David: The international law of migrant smuggling, Cambridge University Press, 2014.

11 Definition adopted by the International Association for the Study of Forced Migration.

12 Allain, Jean: Slavery in International Law: Of Human Exploitation and Trafficking, Martinus Nijhoff Publishers, 2012. Altvater, Elmar: Die Dialektik der Ausbeutung: Ohne Ausbeutung keine Moderne, mit Ausbeutung keine Zukunft, Kursbuch No 179 Freiheit, Gleichheit, Ausbeutung, Murmann Verlag, 2014.

13 Altvater, op. cit. and Standing, Guy: Global Labour Flexibility: Seeking Distributive Justice, Macmillan Press Ltd, 1999.

14 Andrees, Beate and Patrick Belser: Forced Labour: Coercion and Exploitation in the Private Economy, Lynne Rienner, 2009. Forced labour is defined in the ILO Forced Labour Convention, 1930 (No 29) as “all work or services which is exacted from any person under the menace of any penalty and for which the said person has not offered himself voluntarily”. (Art. 2 (1)) The 2014 Forced Labour Protocol make is clear that trafficking for the purpose of forced and compulsory labour is encompassed by the definition of enshrined in Convention No 29 (Preamble). Slavery is defined in the UN Slavery Convention, 1926 as “the status or condition of a person over whom any or all of the powers attaching to the right of ownership are exercised” (Art. 1 (1)). Institutions and practices similar to slavery are defined in the Supplementary Convention on the Abolition of Slavery, 1956.

15 The Protocol supplements the UN Convention against Transnational Organised Crime, adopted in 2000.

16 See also chapter 4.4.

17 ILO: Decent Work Indicators. Guidelines for producers and users of statistical and legal framework indicators, Geneva, 2008.

18 The paragraph is largely based on text and concepts presented by Levi-Faur, David (ed.): The Oxford handbook of governance, Oxford University Press, 2012 and Black, Julia: "Constructing and contesting legitimacy and accountability in polycentric regulatory regimes." Regulation & Governance 2.2 (2008): 137-164; Black, Julia. "Decentring regulation: Understanding the role of regulation and self-regulation in a ‘post-regulatory’ world." Current legal problems 54.1 (2001): 103-146. See also chapter 4 for a further discussion of those regulatory regimes.

Theoretical perspectives on LMIs and their regulation

The purpose of this chapter is to discuss the relevance of major theoretical paradigms and their propositions to this research project. It starts by reviewing core assumptions and tenets of neoclassical economic theory, which largely do not account for the existence of LMIs, let alone their regulation. However, with the rise of information economics and New Institutional Economics (NIE), this parsimonious thinking was soon challenged from within the discipline of economics. These theories have also influenced the thinking of migration scholars, leading to the establishment of what was then called New Economics of Labour Migration (NELM). In combination, they offer some central propositions, which could explain the role and functions of LMIs from an economic perspective, though they tend to downplay or entirely ignore underlying economic and political structures that contribute to their emergence in the first place. This has implications for regulatory approaches. Following this paradigm, regulation should primarily be market-driven, in other words, they should be left to the “invisible hand”19 or to market institutions.

By contrast, critical theory has challenged the status quo of market-based societies and developed a critique of socio-economic inequalities and political dominance. Influenced by Marxist ideas and the Frankfurt School, various migration and labour market scholars have sought to explain LMIs within a larger structural framework linking capital and labour. Based on the assumption that the power between those owning capital and those selling their labour is asymmetric, regulations are seen as an important corrective device to restore justice and fairness in the labour market and beyond.

Finally, network theory, which was initially developed in the natural sciences and in sociology, directly influenced the study of LMIs. Network theory can be seen as a meso-level analysis, combining agencies and structures in a dynamic and interactive way. Researchers of various disciplines started looking at “migrant networks” some 30 years ago and developed a rich body of empirical studies and analytical frameworks. Network theory has also influenced research on governance and regulation, thereby suggesting that polycentric, network-based forms of governance are replacing state-centred governance.20

2.1 New Institutional Economics and asymmetry of information

LMIs, like many other social phenomena, do not fit into the parsimonious neoclassical economic theory, with its assumptions of individual utility-maximizing behaviour, market equilibrium and stable preferences.21 Nevertheless, neoclassical economic theory has influenced social sciences, including the study of labour markets for many decades. It assumes that sellers and buyers meet and compete freely, and that they have full information about the products they seek to buy and the prices they will yield. Applied to labour markets, the tenet is that the supply and demand of labour will be regulated in the same way as in other commodity markets, namely through price setting. The ‘price of labour’ is called labour costs, which primarily encompasses wages. Workers, the “embodiment” of labour, are perceived as rational, utility-maximizing individuals who search for the highest returns in exchange for their capacity to work. Their utility function results from choosing between income and leisure, and they are constrained by time. On the demand side, a profit-seeking firm will hire as long as the value of the labour’s marginal product is higher than the cost of hiring this labour. As more labourers are hired, their marginal product will decline hence firms will stop hiring.22

While the marginal productivity of demand remains a central tenet in economic theory, various studies have shown that social, political and cultural factors influence labour supply and demand, and that collective action, such as collective bargaining, greatly influence labour market outcomes.23 Blatant discrepancies between the predictions of neoclassical economic theory and reality, notably in the field of labour markets and migration, led to a growing body of literature inspired by institutional, Marxist and feminist approaches. While those approaches questioned the fundamental ontological and epistemological underpinnings of the neoclassical economic paradigm, challengers also emerged within “mainstream” economic thinking. Many of them can be associated with what was later coined NIE.

Information economics was a path breaker of this new thinking. While trying to explain the paradoxes of rational market behaviour, this research did not challenge the foundations of neoclassical theory, including its focus on individual agency and the assumption of rational, utility- maximizing behaviour as an over-riding principle. However, information economics recognized that prices are shaped by many factors, by not only demand and supply of a certain commodity. If such factors intervene, “market failures” are a consequence, producing sub-optimal outcomes in terms of efficiency.

The cost of information and its asymmetric distribution are important factors in explaining such market failures. Neoclassical models assume that buyers and sellers, independent of the commodity, have complete information about the quality of the commodity, market competitors and other factors. The price that is set for different commodities transmits the necessary information between buyers and sellers, hence the lack of appreciation for market intermediaries whose business is just this: transmitting information.24 Interest in the “economics of information” grew in the 1960s with Stigler being an important proponent.25 He argued that it costs time and effort to ascertain the price for a specific product or service. Since information among sellers and buyers is not symmetric at all points in time, and as demand and supply fluctuate, price dispersion is inevitable. In principle, however, Stigler thought that the market would take care of the problem of “asymmetric information” through the creation of trade associations, advertising firms and other information-transmitting channels.

In his seminal paper on the “The market for lemons”, Akerlof26 studied asymmetric information and uncertainty about a product’s quality as a deviation of the standard equilibrium model regarding the selling and buying of used cars. In his example, the seller has an advantage over the buyer in that he has more information about the quality of the used car. Owners of bad cars (also called “lemons”) will conceal strategic market information, leading to a situation in which buyers assume that all used cars are potentially “lemons” and hence bid lower prices. This will consequently drive owners of “good cars” out of the market; a process also called “adverse selection”.

Applied to labour markets and job matching, the theory holds that “bad employees” (bad being understood as not being productive) produce sub-optimal outcomes for good employees because employers have limited means to assess productivity and motivation prior to hiring. As a result, wages do not necessarily reflect the marginal product of labour, especially of motivated and productive workers. Those workers are therefore well advised to invest in education, such as college degrees and professional certifications to “signal” their higher motivation (and potential higher productivity) to employers and negotiate higher wages.27. The models are based on the assumption that employers and workers possess equal bargaining power and that employers are at a disadvantage since future employees can conceal strategic information. This makes it difficult for employers to assess their productivity.28

If information and job matching are costly within national labour markets, it is even more so across international borders. The basic assumption of classic equilibrium models is that migrants respond to wage differentials between two spatial units. Migration increases the supply of labour and hence decreases wages at destination, leading to equilibrium. Neoclassical migration theory is usually traced back to Todaro and Harris, who had been influenced by other economists concerned with development and rural-urban migration.29

Todaro and Harris sought to predict migration by using a “two sector model” of rural and urban migration. They assumed that “migrants behave as maximizers of expected utility”30 and that producers in both sectors compete freely. Prospective migrants weigh the discounted future streams of real rural incomes against those they can expect to earn when migrating to cities, weighed by the probability of finding employment. The theory holds that rural – urban migration will occur if the wage rate in the agricultural sector is lower than the employment rate in urban sectors multiplied by the urban wage rate. Conversely, urban – rural migration will occur when the wage rate in the agricultural sector is higher, and equilibrium will emerge when the wage rate is equal to that of the urban wage rate, multiplied by the employment rate. The authors observed that politically motivated minimum wages in urban sectors, especially in developing countries, entice migrants to move despite the availability of jobs. This leads to growing unemployment in urban sectors, including a growth of the informal sector, into which migrants are absorbed while waiting for a job in the “modern” and highly paid urban sector.

In parallel, Lee31 developed his influential concept of spatial movements which later came to be called the “push and pull theory” of migration. Lee’s “push and pull” model stressed factors relating to the area of origin and destination, but he also refers to “intervening obstacles and personal factors”, not all of them being rational from the outset. While Lee is not a neoclassical economist per se, his model greatly shaped the neoclassical thinking that migration is a result of a rational cost-benefit analysis.

Neoclassical economic theories of migration have been critiqued for their sweeping assumptions about rational and utility-maximizing behaviour, methodological individualism, and their inability to explain a far more complex reality. As time passed, it became increasingly obvious that reality would not correspond to the predictions of neoclassical theory. The most puzzling empirical observation was that people actually did not migrate despite existing wage differentials in most instances. In other cases, migration persisted or expanded despite a narrowing wage gap, while it was also observed that wages did not converge despite migration. Neoclassical migration models have also been critiqued for assuming that migrants are risk neutral and possess all the necessary information, particularly about their probability of being employed, which is far from reality. This also explains why neoclassical migration models overlooked the important role of LMIs in the migration process.

In response to those concerns and influenced by information and neoinstitutional economics, a new stream of research developed in the 1980s called NELM.32 A significant contribution to the debate was Stark’s theory of relative depravation to explain why migration is not happening despite widespread poverty. NELM further shifted the emphasis from individuals to households as the main decision-making units and explained migratory behaviour to diffuse risks and adapt to innovation. Finally, and most importantly in this context, Stark and others explored the role of information in migration. By applying the theory of asymmetric information and signalling to international migration, Stark explained why and under what circumstances migrants with a particular skills level (low, medium, high) are more inclined to migrate than others do.

The main premise is that information about skills and wages does not move freely and without costs across international borders.33 It assumes that workers in a developing country (Country P) have a propensity to migrate to a richer country (Country R) given existing wage differentials. The model further assumes that workers in Country P possess, at least for a while, more information than employers in Country R. While migrant workers can obtain information about wage levels in country R and compare them with wages in other potential destination countries, employers are (at least for a while) ignorant about the skills and productivity of foreign workers. In such a situation of asymmetric information, it is argued that workers would exploit their superior access to information to their benefit by concealing strategic information (in the same way as employers would, if access to information was to their advantage).

Stark further assumed that workers would naturally seek the highest wages by comparing different employers and destination countries. However, workers with high skills may suffer, as employers are reluctant to assess their productivity, leading to “adverse selection problems”. The results of the modelling exercise are that in the presence of symmetric information, all skill levels would migrate from Country P to Country R. However, in the presence of asymmetric information, only workers with low skills and wages will migrate, hence it reduces migration from the “top” and saves Country P its most skilled workers. Symmetric information will subsequently be restored by “discovery”, meaning that employers will eventually be able to assess the productivity of migrant workers after a while. This will again increase the quantity as well as the quality of migration, while at the same time raising the benefits of the lowest-skilled workers. Despite the fact that they have probably most to hide, low-skilled workers also benefit from “discovery” since the recruitment of workers with higher skill levels will raise pre-discovery wages.34

In an extension of this model, Stark assumed that migrants would invest in a “signalling device”, such as educational credentials, criminal record checks or medical tests. He further assumed that in a basic model under asymmetric information with signalling, migrant workers (instead of employers) would have an interest in investing in signalling devices. He did not specify the device as such and assumed that the cost of the device is constant and does not vary with the skill level of the migrant. By developing different models, he concluded that devices tend to restore symmetric information and have an important impact on migration patterns.

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