Page 101 - Azerbaijan State University of Economics

Fadai Mardanli Mehman, Vildan Zahidkizi Rizayeva: Do Remittances Compensate for the
Labor Market Gaps Created by Emigration?

force and remittances induce others to work less. The net effect of remittances on the
unemployment rate is ambiguous (decrease/stay the same/increase) because of the
uncertainty of who is emigrating (the unemployed or the employed) and the labor
supply of those at home.

As we have seen above‚ even with this simplified SPSS‚ there is no single universal
pattern. Policymakers in high-emigration countries should not assume that their work
is finished when high volumes of remittances begin to arrive. They also enter the
"remittance trap"‚ wherein a country's economy becomes so reliant on labor exports
and remittances that a competitive labor market does not develop (Abdih et al.‚ 2012).
If remittances fall‚ for example during a recession at the receiving end‚ or if migrants
do not remit home anymore later on‚ then the country that did not develop itself will
find itself with its labor supply diminished by emigration and a big‚ sudden negative
shock to its income due to the fall in remittances. Thus‚ fixing the labor market gap
would require remittances to be used to build human capital and industries (invest in
areas such as education‚ small businesses‚ and other infrastructure) in the host
countries‚ which does not happen automatically but can be encouraged through the
right policies (Giuliano & Ruiz-Arranz‚ 2009).

Finally‚ there is the human perspective. This should not be lost in the numbers.
Families in the main study countries may have ambivalent feelings about family
members abroad. While family abroad are sometimes a source of pride‚ this may result
in the separation of family and the loss of skills and opportunities. The labor market
gap is large and visible (empty villages with mostly old people and children‚ sectors
that lack certain professionals) and remittances keep them alive‚ partly compensating
for the humanitarian toll of having so many people leave. However‚ it can obstruct
development of those localities (Wadsworth‚ 2018).

In conclusion‚ our evidence shows that remittances do some compensating‚ but are
insufficient to cover the labor market gap that emigration leaves in its wake. They do
help pay some of the bills‚ and can alleviate unemployment under certain conditions‚
but will not replace a functioning domestic labor market. In terms of labor market
stabilisation‚ remittance-based policies can only be a partial band-aid at best: the only
way to ensure that any remittances are truly an optimum solution is to transform their
potential (skills‚ savings‚ networks and remittances) into job creation and growth at
home‚ thus reducing the need to migrate.

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