Regulation by Reputation? Quality Revelation of Labor Intermediaries in International Migration
A. Nilesh Fernando, University of Notre Dame
Abuse and contractual breach are commonplace features of international migrant labor. This may in part be due to asymmetries of information between local labor intermediaries, prospective migrants and foreign employers. This paper examines a government program in Sri Lanka that created reputational incentives for local labor intermediaries and then publicly revealed their quality. Using a difference-in-difference design with an eligibility cutoff, we find that the program announcement induced all eligible agencies, and especially low-quality ones, to invest in the rating criteria. Second, we find that eligible agencies experience more and higher quality foreign demand after the revelation of quality. A regression discontinuity design shows that otherwise similar agencies with higher ratings experienced higher foreign demand. We find that the program facilitated better matching between local agencies and foreign employers: reputable employers switch to using higher rated agencies, driving down future harassment complaint rates by migrants and improving the market outcomes of these agencies.