Note #5 – May 2004 

Case of Moldova: Mass Labor Migration as a Consequence
of Inefficient Reforms
by Anatol Gudim

“International Migration Regimes and Economic Development”
Workshop of the Expert Group on Development Issues
at the Swedish Ministry of Foreign Affairs,
Stockholm, May 13, 2004 

Prof. Lucas’ study[1], quite impressive in its depth and coverage of all aspects of international migration, prompts to evaluate the causes and development of this phenomenon in Moldova. Indeed, as Prof. Lucas mentions, in the 90’s Moldova has unexpectedly become the poorest European country; no less than 1/3 of its labor force emigrated and the “tsunami” of remittances reaching 15-17% of GDP now turned out to be the bolt from the blue for the Government. It was only 2003 when the Law on Migration was passed and the Department of Migration under the Government was established; a series of projects are implemented with the help of the European Commission, UNDP, ILO and donor-countries (statistics, SME development, human trafficking, etc.); sociological polls are conducted. 

At the same time, government policy concerning migration is still uncertain, which is indicated by the lack of any comments on this issue in the PRSP[2]. That is why Prof. Lucas’ analysis of the experience of other countries and regions as regards adaptation to the phenomenon of migration is very valuable from the methodological point of view for elaboration of policy recommendations for Moldova. 

In order to accomplish this, it is important to understand the causes of this deadlock, stable depression in the country’s economy and labor market situation, the nature of migration, impact of remittances on family, community and the country as a whole; does migration help reduce poverty in the country? And, finally, how can labor policy be adapted to the new realities of Moldova as an EU neighbor? 

Moldova as a migrant-sending country 

There can be named at least three causes that turned “the garden of the Soviet Union” (N. Khrushchev) into a nidus of instability and poverty:

• weakness of the young state, protracted search for the national (uniting) idea and location in a so-called “grey zone” – zone of geopolitical uncertainty, which deprives the active part of the population, especially the youth, of clear perspectives for the future;
• the frozen conflict in Transnistria;
• contradictory and inconsistent reforms in the economy.

Despite that since 2000 official statistics has been recording a GDP growth, the largest part of GDP comes from outside the real sector of the economy. The bad state of business environment, acute lack of investments, critical state of the country’s balance of payment, large external and internal state debt and unreformed state apparatus – all these affect in a negative way the quality of economic growth[3]. One can judge about the low efficiency of reforms by looking at the main macroeconomic indicators of the Republic of Moldova during the transition period (see the table). It can be asserted unambiguously that the burst of migration in Moldova’s case was caused by socio-economic factors, rather than being motivated politically or ethnically. 

Drastic changes of the 90’s in Moldova’s labor market were reflected both by the reduction of employment (by one third), and by shrinkage of skilled labor force in industry, as well as degradation of the science servicing this sphere. Total employment in the national economy (excluding Transnistria) dropped from 1.68 mil persons in 1993 to 1.36 mil persons in 2003, or by 20%. But unemployment during all these years has been considerately low (6.8-11.1%, under the ILO methodology) since the most part of economically active population shifted to the informal economy, or migrated. 

The active phase of migration had began in Moldova in the mid-90’s at the same time as had the post-privatization reorganization of former state enterprises in industry and of large collective farms (kolkhozes and sovkhozes) in agriculture, which has led to the burst in hidden unemployment. One of its indicators is that the wage earners/employed ratio has changed impressively from 72.9% in 1996 to 49.9% in 2003[4], meaning that a half of those “employed in the national economy” are formally employed registered by the statistics, but are actually absent from enterprises. 

Migration, remittances and poverty 

Some 500 thou to one million of the 4.3 mil residents of Moldova (including Transnistria) are believed to be working abroad. Cyclic and seasonal migration prevails, which makes it difficult to evaluate the real scale of migration. Quarterly estimates of the Department of Statistics (labor force survey) show 280-300 thou migrants, while opinion polls unveil at least twice as much. The Moldovan diaspora abroad has not been consolidated yet. 

The panorama of Moldovan migration, according to the ILO/Soros Foundation-Moldova study (2003)[5], is quite colorful:

• one or more members of every third family are working abroad;
• 69.9% of migrants are male and 30.1% - female;
• 30,8% of them are urban residents and 69.2% - rural;
• 80.0% are between 25 and 40 years of age;
• only 1/3 of the total number had no stable work in the home country;
• about 70.9% of migrants left Moldova legally and the largest share of illegal migrants (36-44%) heads for the Mediterranean countries;
• the receiving states are: Russia – 54.7%, Ukraine – 2.8%, Italy – 18.0%, Greece, Portugal, Turkey – 3.9% to 4.4%, Israel – 2.8%, other – 9.8%;
• employment of migrants abroad: constructions – 31.0%, agriculture, small production – 13.5%, domestic services – 30.9%, trade – 10.8% and no less than 10.0% of women-migrants are occupied in the sex industry;
• average monthly wage of Moldovan migrants, USD: Russia – 425, Greece, Turkey – 598, Spain, Portugal – 897, Italy – 941, Israel – 1065, France, Germany and Benelux – 1209;
• 95.0% of migrants used to remit money to their families in Moldova.

The consequences of the labor force export for Moldova itself are very contradictory. On the one hand, it’s a dangerous weakening of the country’s human resources potential (the outflow of more skilled and educated persons, the impact upon fertility and health). But the remittances, the mastering of new skills and attainments, formation of diasporas as future networks/channels for trade, capital and technology flows back to the home country, are positive facts, on the other. 

According to estimates of the National Bank of Moldova, formal transfers grew extremely rapidly: from 1-2 mil USD in 1995 to 109,8 mil USD in 1999 and about 360 mil USD in 2003. And no less than 30-40% of transfers are informal. Thus, the annual amount of remittances exceeds now the average annual export of Moldova in the last five years (about 600 mil USD) and it is equal to the total foreign direct investments over the whole transition period. 

It looks like the state was not ready to make use of this money. The lion’s share of them were used by households of migrants for immediate consumption and only 10-12% was used for “investments in family” – education for children, purchase of dwellings, land and starting businesses. There were created no structures or mechanisms to accumulate these funds with a view to invest. At the same time, it is quite obvious the impact of remittances on the demand expansion, on the consumption spending and on import expansion (which was 1.7 times as much as the export in 2003), on currency depreciation, and pressure on prices. 

However, remittances’ influence on the poverty reduction and inequality elimination is insignificant. And their economic benefits mainly go to the higher quintiles of the population. Thus, in 1997-2002 the 5^th quintile has been steadily concentrating 48.4-49.0% of the total disposable income of households, while the lower, 1^st quintile – only 3.9-4.6%. The improvement of the Gini coefficient was minor: 0.436 (1997) and 0.421 (2002). More than 40% of the population lives below the absolute poverty threshold[6]. 

Policy remarks 

The future position of the Republic of Moldova as an EU neighbor will mainly depend on the economic policy it pursues today. Control and regulation of migration and concomitant processes is one of this policy’s components. It is important to consider experience of other countries. The actions presently undertaken in Moldova are focused in general at the legal and institutional shaping of the problem: implementing the Law on Migration and some related subordinate norms, expanding the functions of the Department of Migration under the Government, creating an informational system “Migrant”, modernizing border control and procedures, etc. It is planned to ratify the European convention on legal status and social protection of the working migrants, to conclude bilateral agreements with the major countries of destination for Moldovan migrants (Italy, Spain, Portugal, etc.). But it is also important to accomplish actions intensifying the positive effect of migration upon economic development: normalizing relations between the state and private business, stimulating economic units to create new workplaces and the population to save and invest. The “remittances - tsunami” effect is very short-term and it should be used as efficiently, as possible. And another important task is to adapt the migration regime to the new situation emerging after the Eastern EU enlargement that may actually have both positive and alarming consequences for Moldova.