Impact of Remittances on Labour Supply and Occupational Choice in Rural India

Abstract

This study examines the impact of remittances on the labour market decisions of left behind adult family members in rural households in India. Using both selectivity and endogeniety corrected models, the results find evidence of a dependency effect wherein individuals belonging to remittance receiving households are less inclined to participate in the labour market. These effects are much stronger in case of international remittances. Incidentally, the reduction in work participation was found to larger for males than females. While, on the one hand, domestic remittances were observed to increase the intensity of labour supplied by households, international remittances, on the other hand, were found to be lowering hours of work done by left behind family members. Further, domestic remittances increase the proportion of labour supplied to self-employment activities in agriculture; international remittances, on the contrary, were found to be pushing workers into non-agricultural activities. The differences in the impact of domestic and international remittances on labour market participation and work intensity can be attributed to the differences in absolute size of remittances available per capita from the two alternate sources while unobservable household characteristics and locational factors can explain the variations in intra-household labour allocation across activities.

International Remittances and the Labour Market in Peru

“…Similar results were found by Dermendzhieva (2009), Murakami et al (2021), Petreski et al (2019), Al-Assaf (2016), Dey (2022) , Arouri and Nguyen (2018), and Rodriguez and Tiongson (2001) for countries such as Albania, Tajikistan, Macedonia, Jordan, India, Egypt and Philippines, respectively, where the labour supply of the members left behind was reduced. In some countries, the effect is concentrated in men (Albania and rural India) while in others it is more common in women (Macedonia and Philippines).…”

Investigating the Relationship between Remittances, Institutional Quality, and Labour Supply in India

“…Hence, lower domestic labour force participation rate in India's formal sector may indicate the prevalence of 'red tape' as the rules and regulations are often considered excessive and rigid leading to employers and small business owners preferring to employ from the informal sector. Unlike Dey (2022), our empirical results reveal no evidence of remittances affecting labour supply in the long-run for India.…”

“…Another possibility is that remittances raise a significant income source for recipient families and thus may create a moral hazard problem by weakening their incentive to work (Chami et al, 2005). Empirical evidence by Dey (2022) indicates that India's international remittances have culminated in a reduction in labour supply and the intensity of work done. At the same time, the increase in India's domestic labour force participation can also affect the amount of remittances received in the short run.…”

Remittances and inequality: A meta‐analytic investigation

“…Factors such as migration costs, the starting position of migrant‐sending households in the local income distribution and the depth of diaspora networking in host countries, have been suggested as possible explanations for the regional variations. For example, due to high migration costs, migrants from South Asia are more likely to be from urban and better educated households (see Dey, 2022) meaning that remittances are primarily flowing to socio‐economically advantaged households in this region, helping them to pull further ahead of already disadvantaged households. As a result, remittances enhance inequality in South Asia.…”

“…Similarly, Bangladeshi workers heading to Kuwait paid anywhere from $1675 to $5154 (Abella & Martin, 2014). Such high migration costs deter lower‐income households in South Asia from sending migrants; as a result, migrant‐sending households from South Asia are more likely to be urban and better educated and less likely to be socio‐economically disadvantaged (Dey, 2022). Remittances thus primarily flow to socio‐economically advantaged households in South Asia which could increase inequality in the region.…”