Page 100 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.83, # 1, 2026, pp. 82-106

jobs were found abroad but money was sent home. However‚ this is a short-term solution
to an underlying imbalance in labor demand and supply. Kyrgyzstan has historically had
low unemployment‚ but some labor shortages have been expressed in specific sectors‚
and reliance on remittances as a source of GDP growth and rural household income
(World Bank‚ 2020). In other words‚ the labor gap isn't necessarily unemployment‚ but a
lack of available workers in the local economy which can cut growth.

This is also the case in Nepal and Tajikistan‚ where recent studies show low labor-
force participation rates and wide-ranging reliance by families on their remittances.
However‚ we found that remittances did not lead to lower unemployment or more
people re-entering the labor force back home. Indeed‚ remittances seem to have
sustained the labor gap without bringing local economies to abject poverty.
Remittances help maintain families in countries where opportunities for domestic
employment are rare. This can also reduce pressure on governments to invest in job
creation domestically (a negative because the status quo of exporting labor is
maintained) but it has the positive effect of preventing extreme poverty. Tajikistan's
remittance/GDP ratio is one of the highest in the world (over 45% in 2024) and one
of the lowest employment to working age population ratios in the world‚ with fewer
than half of the working age population employed or searching for work (World Bank‚
2024). This is further evidence of a weak domestic labor market‚ although they are
not able to make up for human capital loss.

The case of Moldova is similar and it was flooded by remittances in the 2000s. Few
industrial enterprises survived the Soviet Union's collapse‚ and the rural economy
depended on remittances and subsistence agriculture. Unemployment was relatively high
until later reforms and continued emigration reduced the size of the labor force. Although
unemployment fell‚ this was mostly because so many Moldovans of working age had left
or given up looking for work. However‚ while remittances raised consumption and living
standards (Miklós‚ 2019)‚ they did not generate enough demand for local job creation or
domestic business investment. Only recently‚ in tandem with the opportunities of
European integration and foreign investment‚ Moldova has sought to attract some of the
diaspora back for the IT and services industries.

In summary‚ then‚ remittances do not necessarily provide a surplus of labor to replace
the workers who leave with their labor they have lost. Remittances do provide a
surplus of cash for households (more money to spend in the household)‚ but not a
surplus of labor in the labor market (i.e. fewer workers producing goods and services
locally or remaining workers without a sufficient number of jobs). A subtlety is that
the net joint effect of emigration and remittances on labor force participation is
slightly negative (Carare et al.‚ 2024) because emigration takes people out of the labor

100