Page 82 - Azerbaijan State University of Economics

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

Do Remittances Compensate for the Labor Market Gaps Created

by Emigration?

Fadai Mardanli Mehman , Vildan Zahidkizi Rizayeva
1
2
1,2 Azerbaijan State University of Economics (UNEC), Baku, Azerbaijan
ORCID ID: 0009-0001-4044-8649; [email protected]
ORCID ID: 0000-0002-6893-4227; [email protected]

https://doi.org/10.30546/jestp.2026.85.01.0106

Received: November 14, 2025; accepted April 24; published online June 05, 2026

ABSTRACT
Emigration reduces labor supply in the country of origin‚ causing imbalances in labor
market outcomes in terms of employment‚ sectoral skills‚ and wages. This paper assesses
the impact of migrant remittances on the mitigation of such effects in Kyrgyzstan‚
Moldova‚ Nepal‚ and Tajikistan over the period 2002-2024. World Bank data was used and
a descriptive‚ correlation and regression analyses were performed to understand the effect
of remittances to GDP ratio on the unemployment rate‚ used as a proxy for labor market
mismatch. Results show the labor market impact of remittances is heterogeneous across
countries. In Kyrgyzstan‚ remittance inflows correlate with lower unemployment‚
suggesting that emigration and remittance income helped to absorb labor surpluses. In
Moldova and Tajikistan‚ higher remittance inflows correlate with higher unemployment or
lower labor force participation‚ suggesting that remittance income reduces the incentive to
work at home in these countries. These results imply that remittances are mainly used to
compensate for the lost income‚ rather than to replace the lost productive labor force. In
Nepal‚ there is no net effect on unemployment. Respective domestic job creation‚
productive investment‚ and economic development in migrant-sending areas remain
imperative for long-term adjustment.

Keywords: remittances, emigration, labor market gaps, unemployment, economic
development.

JEL Classification: F22, F24, J61, O15, E24

1. INTRODUCTION
Labour market impacts of emigration can take place if the sending country suffers a
high emigration rate of working age individuals. Sectoral labour shortages‚
unemployment‚ labour force participation and wage effects are some of the possible
consequences for the sending country of large scale emigration and working age
individuals going to work abroad. At the same time‚ emigrants send home some of their
earnings as remittances‚ which in many developing countries have over time formed a

82