Prior to 1913, visas were not required for transit between most countries, and work permits were not required for employment of foreigners. Passports were largely used as proof of identity and/or citizenship once inside national borders in case help were needed, typically from an embassy or ambassador abroad. Border formalities focused on tariff revenue collection from those crossing borders with goods in transit, not on documentary proof of identity.
How visas and work permits restrict global labour mobility
Today, in our allegedly globalised world, individuals crossing border not only need passports but also often visas (permitting entry) and work permits (permitting entry for purposes of paid employment). Obtaining them can involve documentary requirements necessitating months and even years of preparation. There are many stories of delays and bureaucratic complexity and a wide range of problems, including escalating visa fees, delays in issuance, randomness in decisions, the need for transit visas, collateral (add-on) costs (such as added costs to airlines), photographic and medical requirements for issuance, bureaucratic impediments1, and the use of visas as an inefficient tax mechanism in some countries.
Both visas and work permits usually involve conditions such as time limits, registration requirements, and other restrictions. A wide range of types of visas and work permits characterise country systems depending on the length (or permanence) of stay, the purpose of visit, and other characteristics. Tourism, study and business visits typically only require a visa. Most visas do not entitle foreigners to enter paid employment in the local labour market.
Visa and work permit types, application criteria, administrative procedures, and decision rules on issuance vary across countries. Specific legal structures, qualitative and quantitative restrictions on issuance, and differing rules on attaining permanent residence are part of this heterogeneity. Procedural transparency, such as status inquiry procedures, notifications of delays, and rejection appeals, varies widely.
Nationality matters, as visa and work permit exemption and waiver programmes vary from country to country and from region to region. Most OECD countries, for instance, have reciprocal agreements on visa exemption for short-term visits to and from each other. Regional trade and economic partnership agreements also cover some visa and work permit exemptions for temporary and specific labour movement.2
The costs of visa and work permit restrictions
We have produced some speculative estimates3 of the potential efficiency costs that current visa and work permit requirements impose. We divide these costs into two different categories. One involves resource misallocation costs due to labour being barred from locating in its most productive use. The other reflects private and public administrative, delay, and other costs incurred to meet visa/work permit issuing requirements.
Several studies attempt to quantify the resource misallocation costs of global restrictions on labour mobility, and the numbers are large. One of the earliest pieces in this literature is Hamilton and Whalley (1984), who found that liberalising global labour mobility up to the point that marginal value products of labour are equalised across countries or regions would produce large output gains. Under assumptions of fixed world labour supply and global full employment, they estimated annual global gains from eliminating all visa and work permit restrictions to be in the range of 60% to 200% of World GDP in 1977.
Iregui (2003), distinguishing between skilled and unskilled workers, estimated large worldwide efficiency gains from liberalising the global movement of both skilled and unskilled labour, ranging from 15% to 67% of world GDP.
These and other studies indicate that visas and work permits restricting the free flow of labour across national borders impose large misallocation costs on the global economy. These cost estimates do not include administration delays in visa issuance or a backlog of reapplications due to previous rejection. Where international trade and businesses require frequent and on-time international travel, such time delays lead to losses in business opportunities.4
Using available data and anecdotal information on worldwide visa/work permit application fees, time delays, and tourism statistics from the World Tourism Organisation, we have made some simple speculative calculations of the possible size of the processing costs involved globally. The tourism statistics only cover travellers for short-term vacation, study, and business purposes – not people with work permits (exceeding one year) nor permanent migrants.
We make the conservative assumption that only 25% of actual travellers need to apply for a visa.5 We also assume that on average the application fee is $100 and other application costs amount to $50 (e.g. transportation cost for attending interview). We assume time delays of 14 days and a modest opportunity cost of time of $25 per day. According to the World Tourism Organisation, there were 703 million international tourist arrivals around the world in 2002. These include travellers for vacation and business visitors.6 Most of these arrivals were from high-income countries and enjoyed visa exemptions. Using this figure, these assumptions yield total worldwide costs of processing visa applications of $88 billion or around 0.3% of World GDP.
Further costs arise from the losses of tourism and business opportunities that require international travel (e.g. contract negotiation, business exhibition, site and product inspection, after-sale customer services). Losses of business opportunities due to visa/work permit problems are hard to quantify, but short- to medium-term business visits across countries are typically a central component in maintaining ongoing international businesses and creating new business opportunities.
Global negotiations to mitigate the effects of visas and work permits
Given both the seeming severity of the problems caused by current visa and work permit restrictions and the associated costs to the global economy, an obvious question to ask is whether global international negotiations could help mitigate their impacts. Key questions are who should be party to such negotiations, where they should be held, what should be the location of such negotiations, and whether they could or should take place under the auspices of an existing international body, such as the World Trade Organisation, or whether a new entity should be created.
While at first sight seemingly attractive, the downside of using existing organisational forms is that such negotiations would have to fit into the potentially poorly accommodating structure and focus of these entities. The WTO, for instance, stresses non-discrimination in trade and other policies while most visa/work permit practices are highly and inherently discriminatory. It is also a multilateral entity requiring unanimity of member countries on any agreed disciplines. Country-to-country negotiation on, say, numerical limits on bilateral entry is hard to envisage in a WTO format. Using a new entity might avoid such clashes.
A potential benefit of using existing institutional structures to negotiate labour mobility restrictions is the possibility of speeding negotiations on visas and work permits by allowing for cross bargaining on other issues in those bodies. Moreover, adding visas and work permits to the global bargaining table might speed progress on other issues. In the WTO Uruguay Round, it was repeatedly claimed that broadening bargains in this way speeds negotiating progress. But in the same round, the complexity of the issues involved in each area itself at times impeded simultaneous bargaining. There are certainly potential benefits to addressing visas and work permits within the WTO framework, but the issue needs to be approached realistically and carefully.
A new international entity created specifically to address issues related to visas and work permits could address a series of issues or specific problems and aim to respond to the many concerns over visa and work permit practices around the globe. Various practices could also be eliminated by mutual agreement by member countries in a new organisation. This also may be a productive platform for a new agency to be built on rather than expanding existing multilateral agencies to a broader focus. Unlike the WTO approach of building a multilateral rule regime through a multilateral negotiating forum and a mechanism for dispute settlement, such a body could be informational and investigative as well as providing a forum for bilaterally negotiated cooperative arrangements and overall policy management.
Dayaratna Bunda, O.G. and J. Whalley (2005), Beyond Goods and Services: Competition Policy, Investment, Mutual Recognition, Movement of Persons and Broader Cooperation Provisions of recent FTA’s involving ASEAN countries, mimeo.
E.C.Y. Ng and J. Whalley (2007)“Visas and Work Permits: Possible Global Negotiating Initiatives”, The Review of International Organizations, Springer US, 19.02.2008, vol. 3, no. 3, pp. 259-285
Hamilton, B. and J. Whalley (1984), Efficiency and Distributional Implications of Global Restrictions on Labour Mobility: Calculations and Policy Implications, Journal of Development Economics, Vol. 14 (1-2), pp.61-75.
Iregui, A.M. (2003), Efficiency Gains from the Elimination of Global Restrictions on Labour Mobility, World Institute for Development Economics Research Discussion Paper, 2003/27, United Nations University.
Nielson, J. (2002), Current Regimes for Temporary Movement of Service Providers: Labour Mobility in Regional Trade Agreements, Joint WTO-World Bank Symposium on Movement of Natural Persons (Mode 4) under the GATS, 11-12 April 2002.
1 Some countries are now requiring dental records for some types of visas.
2 Examples are the EEA, EFTA, COMESA, NAFTA. For more detailed discussion on these, see Nielson (2002). See also Dayaratna Banda and Whalley (2005) for a discussion of these arrangements involving ASEAN countries.
3 See Ng and Whalley (2007).
4 For example, reports from Russia indicate that concerns over an illegal inﬂux of people have caused the Russian authorities to remedy what they see as abuse of the system. According to the Russia Journal (10 September 2003), for almost months, foreign executives, investors and business associations have been “shouting themselves hoarse” over the “mess” that the Russian visa system is in, and the Russia Journal claims no one seems to be listening. Russian visas are some of the most expensive in the world, and require a complicated system of invitations, supporting documentation, accreditations, applications and registrations. Brokers can often obtain a one-year business visa in four to six weeks but at a cost.
5 Actual travelers are tourist arrivals reported by the World Tourism Organisation, distinct from potential travelers who do not travel due to visa rejection and other issues. Our 25% figure reflects the assumption that few actual travelers are non-OCED citizens travelling to OECD countries (or vice versa) needing visas.
6 The World Tourism Organisation deﬁnes tourists as people who “travel to and stay in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes not related to the exercise of an activity remunerated from within the place visited”.