Imperfect Competition and Immigrant Labor in Middle East

I found myself taking a very interesting position during a conversation with a Wall Street investment banker sometime last week. During a very open discussion about the nature and state of the economy in Kenya, I mentioned that the most intractable economic problem for that country in particular and a number of African countries generally is that of creating employment. Whereas official employment figures in Kenya suggest an unemployment level in the 19-20% range, my argument was that given the large number of people in seasonal and disguised unemployment, that figure was an understatement by as much as 50%.

Thinking that it was a fairly safe and sensible statement to make given that manifestation of unemployment in Kenya would be easy to demonstrate, I was completely unprepared for the demand for solutions that came from my interlocutor. My view was that increased deregulation and better education would be more effective for raising productivity and wages than would government involvement. In response to this, the Wall Street executive, who is well-travelled, asked me why the government in Kenya or other African countries have not initiated a labor export programme similar to that by south Asian countries including Bangladesh and Nepal.

Now our agreement ended at the point where I mentioned that there is a modest labor export programme but that it is unlikely that a large number of Kenyans would find employment in the Gulf states. Asked why, I stated unequivocally that many Persian Gulf residents and employers are not prepared to live side by side with a huge diaspora of Africans on a permanent basis. Now, that is not to suggest that the main reason is racism (though possibly it could be to an extent) but that culturally, it is unpalatable for many in the Middle East.

Obviously, a business person may be acquainted with Gary Becker's work suggesting that discrimination is not rational because a competitor would take advantage of prejudice to grow a business. For a libertarian, this makes sense from the economic point of view but an empirical test of this fact by two professors from the University of Chicago shows that prejudice may persist in spite of the formal models suggesting that it is not rational for businesses in the long term. Kerwin Kofi Charles and Jonathan Guryan wrote the paper reviewed here showing through an empirical test that wage gaps may persist especially in markets with imperfect competition. I suspect that the cultural issues aside, the imperfect competition for immigrant labour may lead to a disproportionate skew towards Nepali and Bangladeshi workers to the exclusion of identical Africans in manual labour in the Persian Gulf.

Now, how do I find the data to test that? I suspect this may be a good paper for the Journal of Political Economy.