Columbia International Affairs Online: Working Papers

CIAO DATE: 07/2013

Split Decisions: Family Finance When a Policy Discontinuity Allocates Overseas Work

Michael Clemens, Erwin Tiongson

May 2013

Center for Global Development


Share Print A temporary-worker program that allows Filipinos to work in South Korea set up unusually good circumstances for measuring the effects of migration. Michael Clemens and Erwin Tiongson take advantage the natural experiment and find that affected households spend more, borrow less, and invest more in their human capital. The Philippines has allowed its citizens to apply for temporary work visa through Korea’s Employment Permit System since 2004. EPS jobs are accessible only to people 18 to 39 years old with either a high-school or vocational degree and two years of work experience, or a tertiary degree and one year of work experience. Since 2005, Filipino applicants have had to pass a Korean language test to qualify. There is perhaps nothing terribly unusual in this arrangement, but it did create unusually good circumstances for testing the economic effects that working abroad had on the households of those who qualified. Those who barely failed the test are otherwise statistically indistinguishable from those who barely passed, and that creates a natural experiment for isolating the causal effects of selection into the program. Michael Clemens and Erwin Tiongson's analysis of the natural experiment finds significant effects on migrants’ households. In short, households with a member working in Korea spend more, borrow less, and invest more in their human capital (through, for example, education). They find no significant effects on saving or entrepreneurship. The broad pattern is that households in the survey sample emphasize investments in human capital over physical capital such as entrepreneurship or savings.