Overstaying Guest Workers and the Incentives for Return

djajic, slobodanand ; vinogradovay, alexandra;

A guest-worker program can be a very flexible and convenient way of meeting labor
shortages in a host country, assuming that the migrants adhere to the rules of the program.
This article investigates the conditions under which guest workers have sufficient incentives for voluntary return to their country of origin when their work permits expire. Should they choose to overstay, the article examines how various factors influence the optimal duration of the overstay phase of a foreign worker�s planning horizon. The analysis is conducted in the context of a lenient enforcement regime that avoids deportations of undocumented aliens. It relies instead on eligibility criteria and pricing instruments, such as partial withholding of salary and an exit tax for those who overstay, to provide incentives for voluntary return at the end of the contract period.