Page 84 - Azerbaijan State University of Economics

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

2. LITERATURE REVIEW
Numerous articles have focused on the impact of remittances on the labor market of
the sending countries. Many of these studies use a labor-leisure choice model‚ which
states that an increase of non-labor income leads to a preference for leisure (Borjas‚
2020). When households receive income from abroad with no conditions‚ such as the
number of hours worked‚ members of the household may choose to reduce their
working hours or quit their job entirely since remittances alone enable the household
to achieve its desired income. This is known as the work disincentive effect. A large
body of empirical evidence suggests that remittances lower labor force participation
rates. Some evidence exists for a differential effect by gender. Murakami et al. (2021)
find remittance-receiving households in Tajikistan to have much lower rates of labor
force participation than non-remittance-receiving households. In fact‚ in their study‚
remittances correspond to a 10+ percentage point reduction in labor force participation
rates. Similar results are found in Latin America: Sousa and Garca-Suaza (2018)
document that households receiving remittances in El Salvador‚ Guatemala and
Honduras were less likely to participate in the labor force than non-receiving
counterparts. In other developing countries such as Ghana (Asiedu & Chimbar‚ 2020)
and Ethiopia (Ademe Ayalew & Mohanty‚ 2022) there is also evidence for the labor
supply effect of remittances‚ indicating that remittance incomes could be used to
withdraw some household members from the labor market. Several studies have found
that this employment effect is heterogeneous across the household. For example‚
Karamba et al. (2019) find that the labor supply effect is larger for women as well as
households that have very young or old adults compared to prime age males. These
facts are consistent with findings of remittances enabling secondary earners (mostly
women and youth) in the family to stop searching for work or stay out of the labor
market longer to produce in the household‚ study‚ or engage in leisure. Similar results
for the impact of the post-migration period and the remittance period on the economic
restructuring and adaptive resilience of job growth were reported in Azerbaijan
(Kazimov‚ 2025; Niftiyev‚ 2020).

Alternatively‚ remittances create demand and spur investment‚ which can help the
economy achieve a higher level of employment. Increased demand for goods and
services may result in employment creation (particularly within retail and construction
sectors) and a reduction in the rate of unemployment (Chami et al.‚ 2012). Examining
developing countries‚ Azizi (2018) found that remittances had a small decrease in
labor participation. She estimated that a 10% increase of remittances to GDP is
associated with a 0.17% decrease in labor participation on average. The impact of
remittances on male labor force participation was not statistically meaningful.
Remittances were found to have small negative impacts on female labor force

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