Page 83 - Azerbaijan State University of Economics

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

large source of household income and external development aid. There remains a
counter-question as to the extent to which remittance inflows can replace the labor loss.

On the sending end‚ remittances can in fact be of considerable size. In Tajikistan‚
which is one of the countries studied in this article‚ personal remittances were around
45% of GDP in 2024 (World Bank‚ 2025). Such flows can also provide households
with income‚ consumption‚ and the ability to reduce poverty in origin countries
(Carare et al.‚ 2024). More recently available evidence suggests that this remittance-
driven growth led to a 9% decline in poverty in Tajikistan in 2024 (World Bank‚
2024). Likewise‚ in Nepal‚ as remittances have now exceeded one-quarter of GDP‚
rural households improved their standards of living (Dhakal & Paudel‚ 2023).
Remittances also stabilise demand: from the demand side‚ remittances may attenuate
the income effects of labour outmigration through sustaining domestic demand and
indirectly stimulating local economies (Chami et al.‚ 2012).

Beyond that‚ remittances cannot replace human capital‚ skills and productive capacity
that have been lost due to emigration. Labor market gaps also result from loss of skills‚
exit of working-age individuals from domestic labor markets‚ or where households are
no longer dependent on local income sources. Sending countries see a decline in
productivity growth and long-term economic growth potential following the emigration
of skilled workers and entrepreneurs (Buchar‚ 2020). Likewise‚ remittances may
disincentivize household members to work or search for employment‚ reducing the labor
supply in the sending country (Borjas‚ 2020). Remittances may compensate for lost
household income‚ but will not substitute for lost employment and productivity.

We study emigration‚ remittance flows and labor market impacts for four countries in
which important out-migration took place in the past two decades: Kyrgyzstan‚
Moldova‚ Nepal and Tajikistan. All four countries are highly remittance-dependent
economies (Barajas et al.‚ 2018) and we want to understand the impact of remittances
on the economy. Unemployment rates are the most common indicator of employment.
Falling unemployment rates may be evidence that the labor market pressure has been
relieved by out-migration and/or by the demand for labor stimulated by remittance-
financed consumption.

The following section will show the theoretical and empirical literature on the effect of
remittances and emigration on labor supply‚ employment and the unemployment rate.
The next section will describe the data and methodology‚ including the World Bank
indicators and analysis with SPSS. The resulting results and discussion section
describes the descriptive statistics‚ correlation analysis and regression estimates for the
two countries and the final section addresses the question of whether remittances reduce
the labor market impact of emigration and the implications for sending countries.

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