Remittances and Aggregate Labor Supply: Evidence From Sixty‐six Developing Nations

Abstract

Do remittances reduce labor supply in recipient economies? This paper addresses this question with aggregate level data for a panel of sixty-six developing countries from the Middle East and Africa, Asia and the Pacific, and Latin America and the Caribbean over the period 1985 to 2005. The results exhibit a positive and significant relationship between remittances and aggregate labor supply. The effect is clearly driven by men in each of the three regions. Three potential explanations are put forward to explain these empirical findings: (1) non-migrating household members are likely to increase their labor supply in order to defray migration-related expenses; (2) neighboring households increase their labor supply to help family members migrate after they become more aware of the benefits of remittances; and (3) remittances overcome credit constraints, thus generating employment.

Financial remittances, trans-border conversations, and the state

“…The evidence is not conclusive, though, and seems to relate mostly to women and child labor (Amuedo-Dorantes & Pozo, 2006a, 2006b. Posso (2012) looks into data on sixty-six developing countries from the Middle East and Africa, Asia and the Pacific, and Latin America and the Caribbean (1985Caribbean ( -2005. The author finds a positive and significant relationship between remittances and aggregate labor supply.…”

The Impact of Foreign Direct Investments and Remittances on Economic Growth: A Case Study in Central and Eastern Europe

“…Posso [26] and Chami et al [27] analyzed households that benefited from remittances and noted that these have a lower workforce participation rate as compared with non-migrant households. Besides, countries of origin are confronted with a reduction of the workforce offer Hanson [28], a phenomenon that halts economic growth.…”

Remittances and informal work

“…Second, assuming there is a lag between emigration and time when remittances start flowing in, the departure of a migrant may force the remaining family members to work more to compensate for the lost labour and income (Binzel and Assaad, 2011;Gagnon and Khoudour-Castéras, 2011). Migrant family members may also choose to work more to defray the incurred migration costs (Justino and Shemyakina, 2012;Posso, 2012). Third, remittances can help people pay for child and elderly care and enable carers, especially women, to participate in the in labour market.…”

“…However, it can also be argued that higher reservation wages resulting from remittances encourage people to switch from waged to household work (Gagnon and Khoudour-Castéras, 2011). Fourth, remittances can provide the necessary capital to start a small business or work as self-employed, thus increasing employment in the migrant household and beyond (Posso, 2012); sending a migrant abroad can indeed be viewed as a household strategy for raising capital in the presence of imperfect credit markets (Stark, 1991). Finally, remittances can encourage the neighbouring nonmigrant households to work more in order to help household members migrate after they become aware of the benefits of remittances (Posso, 2012).…”

“…Second, the study explores possible effects of remittances on the employment outcomes of people who do not receive remittances. The country-level literature (Posso, 2012) has suggested community-level effects of remittances on employment of non-migrant households. I test whether such links exist at the individual level, paying particular attention to informal employment.…”