Are Remittances Good for Labor Markets in LICs, MICs and Fragile States?

By Ralph Chami, Ekkehard Ernst, Connel Fullenkamp, Anne Oeking

May 9, 2018

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Ralph Chami, Ekkehard Ernst, Connel Fullenkamp, and Anne Oeking. Are Remittances Good for Labor Markets in LICs, MICs and Fragile States?, (USA: International Monetary Fund, 2018) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We present cross-country evidence on the impact of remittances on labor market outcomes. Remittances appear to have a strong impact on both labor supply and labor demand in recipient countries. These effects are highly significant and greater in size than those of foreign direct investment or offcial development aid. On the supply side, remittances reduce labor force participation and increase informality of the labor market. In addition, male and female labor supply show significantly different sensitivities to remittances. On the demand side, remittances reduce overall unemployment but benefit mostly lower-wage, lowerproductivity nontradables industries at the expense of high-productivity, high-wage tradables sectors. As a consequence, even though inequality declines as a result of larger remittances, average wage and productivity growth declines, the latter more strongly than the former leading to an increase in the labor income share. In fragile states, in contrast, remittances impose a positive externality, possibly because the tradables sector tends to be underdeveloped. Our findings indicate that reforms to foster inclusive growth need to take into account the role of remittances in order to be successful.

Subject: Balance of payments, Employment, Labor, Labor force participation, Labor markets, Remittances, Wages

Keywords: Caribbean, Central Asia, Child wage labor, Dutch Disease, Employment, Fragile countries, Global, ILO wage projection database, Impact of remittance, Inclusive growth, Labor force participation, Labor markets, Low income countries, Middle income countries, Remittance receipt, Remittances, Remittances-unemployment relationship, South Asia, Sub-Saharan Africa, Wage growth, Wages, WP

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/102
Stock No:

WPIEA2018102
ISBN:

9781484353615
ISSN:

1018-5941

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