A Note on the Labor Market Effects of Remittances in Latin American and Caribbean Countries: Do Thresholds Exist?

Abstract

The labor market effects of remittances have long been examined in the empirical literature. To date, the results have been mixed: some authors observe a negative association between remittances and unemployment while others report that remittances increase unemployment. This study empirically examines the impact of remittances on unemployment using macroeconomic data for a sample of 18 Latin American and Caribbean countries. Specifically, the study tests whether there is a nonlinear relationship between the variables. Results suggest that when the remittance-to-GDP ratio is low, remittances have a positive and significant impact on unemployment. However, as they increase, remittances are negatively associated with unemployment. This suggests the possibility that estimations based on the assumption of a linear relationship between remittances and labor may mask the true relationship between the variables.

When leaving is normal and staying is novel: Men’s labor migration and women’s employment in rural Mozambique

“…A substantial body of scholarship has focused on the effects of international migration on labor force participation outside subsistence agriculture of nonmigrating family members. While the connection between migration and labor supply in sending areas is complex and context-specific (Chami et al 2011;Jackman 2014;Lo ´pez-Feldman and Escalona 2017), most studies conclude that migration discourages nonmigrating household members from engaging in paid employment, largely because remittances sent by migrants meet household financial needs. For example, Rodriguez and Tiongson (2001) found that in the Philippines international labor migration is associated with lower levels of labor force participation among nonmigrating relatives.…”

Remittances and informal work

“…Drinkwater et al (2009) find an insignificant relationship between unemployment and remittances for a panel of 20 countries (where remittances are equivalent to at least 1 per cent of GDP). Jackman (2014) obtain an inverted V-shaped relationship between remittances and unemployment in Latin American and Caribbean countries: remittances and unemployment are correlated positively (negatively) if the remittances-to-GDP ratio is lower (higher) than 3.25 per cent. Posso (2012) finds that remittances have a positive effect on the labour force participation rate in a panel of 66 developing countries.…”

Remittances and Informal Work

“…Drinkwater et al (2009) find an insignificant relationship between unemployment and remittances for a panel of 20 countries (where remittances are equivalent to at least 1% of GDP). Jackman (2014) obtain an inverted V-shaped relationship between remittances and unemployment in Latin American and Caribbean countries: remittances and unemployment are correlated positively (negatively) if the remittances-to-GDP ratio is lower (higher) than 3.25%. Posso (2012) finds that remittances have a positive effect on the labour force participation rate in a panel of sixty-six developing countries.…”