Do restrictions on foreign workers really benefit locals

Over the past couple of years, many countries globally have made hiring foreign workers more difficult. The usual logic for these actions is that it will force companies to hire more local workers and hence provide a boost to employment prospects in the country. Governments seem to believe that companies are deliberately recruiting foreigners at the expense of locals and that reduces employment prospects for locals. Does this logic really make sense?

The reality is usually more nuanced and it could be argued that the opposite is true – making it easier to hire foreigners improves job prospects for locals.

To understand the counter argument, it is important to note the context in which restrictions on foreigners are being placed. 

In developed countries, such as the UK or America, the restrictions are driven by an attempt to reduce the number of workers in lower paid jobs. Usually, the governments allow and encourage highly skilled foreigners to migrate to the country, sometimes with a path to citizenship. Whilst this targeted strategy appears to improve job prospects for local workers, especially in low skilled jobs, in the long run the resulting shortages and wage inflation leads to companies reducing their hiring plans as they try to control costs. Furthermore, the reduction in migration also tends to reduce total economic activity and hence the number of jobs that would otherwise have been created.

In developing countries, the restrictions on foreigners are normally accompanied by other populist measures such as taxing the rich, increased taxes on companies and measures to protect low skilled workers such as making it harder to fire workers. Many times these acts are driven by short term political calculations in an attempt to win votes. Unfortunately, these restrictions often end up reducing the amount of investment in the country by business and hence reducing employment opportunities for all workers. Business requires certainty in regulations and an ability to ensure they can fill their requirements for skilled workers in order to invest or expand in these countries. Given the cost of hiring expatriates, businesses would normally choose to recruit locally, wherever possible. Hence, expatriate hiring is usually the last option that businesses look at, when all other options have been exhausted. 

Hence, countries that want to improve job prospects for locals need to focus more on skill development and creating an enabling climate for business investment rather than putting hurdles in the way of skilled hiring for business, which would ultimately lead to lower growth opportunities and job prospects for all workers.

Keywords: reduces employment prospects | short term political calculations | hiring foreign workers | low skilled workers | improve job prospects