Testing for Repugnance in Economic Transactions: Evidence from Guest Work in the Gulf - Working Paper 463

October 04, 2017

Workers from poor countries can find enormous economic opportunity by working temporarily in a rich country. Such “guest workers” commonly triple or quadruple their earnings. But agencies that fight global poverty do little to facilitate guest work. This may be because guest workers are perceived to typically suffer negative side effects that outweigh the benefits. For example, guest workers are sometimes perceived to be systematically cheated and deceived by recruiters, incurring debts from loan sharks that they can never repay.

It is difficult for research to test those perceptions. For example, it is insufficient to simply ask Indian workers in the Gulf about their earnings or working conditions, and compare them to workers in India. Anecdotes gathered from workers may not reflect typical workers’ experiences. Indian workers who go to the Gulf could be very different from other Indian workers. And Indians who speak well of a migration experience today could regret the decision later.

This paper uses a natural experiment to test several perceptions of harmful side-effects on Indian guest workers in the Gulf. The natural experiment is a sudden stoppage of construction-work recruitment in 2008, which created large pools of workers whose ability to migrate was largely a coincidence of the timing of their job application, but are otherwise very similar to each other. For example it allows research to test whether typical guest workers became more indebted or less indebted, three years later, than otherwise similar Indians who did not become guest workers. The research shows little evidence that the harmful side-effects often ascribed to guest work are typical and systematic, though this does not contradict the occurrence of many individual cases of harmful side-effects.

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