The Impact Of Remittances On Labor Supply : The Case Of Jamaica

Abstract

A puzzle in the recently-stagnated economy of Jamaica is that high rates of unemployment have persisted even when real wages have been increasing. This paper examines aspects of the labor supply in an effort to understand why high rates of unemployment have existed with increasing real wages. This is a sign of a badly functioning labor market. The cross-sectional analysis suggests that remittances have some impact on labor supply, especially on labor market participation. The pseudo panel data analysis also confirms that remittances have a strong impact on labor participation but not on weekly working hours. Households with remittance income a have higher reservation wage and have reduced the supply of labor by moving out of the labor force.

The impact of migration on family left behind

“…Grigorian and Melkonyan (2011) find a decrease in hours of work in Armenia for those households receiving remittances from migrants abroad. Kim (2007) shows that remittance income reduces labor market participation for nonmigrants in Jamaica. Rodriguez and Tiongson (2001) find that migrants reduce the labor participation and hours of work of non-migrants in the Philippines.…”

Public Investment in Resource-Abundant Developing Countries

“…An alternative modeling strategy would be to adopt the Greenwood-Hercowitz-Huffmann preference (Greenwood et al (1988)), which removes the wealth effect. A number of researchers, however, find a negative effect of remittance income on labor supply in developing countries, suggesting some wealth effect still operates; see e.g., Kim (2007). 28 The welfare is measured by the average consumption change each period-in percent of consumption of the initial steady state-required to equate the present-value welfare in a path with a windfall to that in a path without.…”

The Evolution of Poverty and Inequality in Jamaica in 2003-07: Trends and Determinants

“…These results could be due to the exit of skilled and high-earning women from the labor force and the concave relationship between experience and the likelihood of labor market participation: higher-paid workers may be able to retire (exit) earlier than lower-paid workers, driving down the observed wage for older workers. These results may also be linked to the increase in reservation wages of Jamaicans due to increased remittance inflows (documented in Kim, 2007), which could encourage older workers and women from families with migrants (who tend to be better-educated and higher-earning on average) to exit the labor force. However, and regardless of whether one goes with the simple estimates of Table 3 or the Heckit estimates of Table 4, unlike with education, there is no clear pattern in the evolution of returns to experience or gender.…”