Page 93 - Azerbaijan State University of Economics

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

participation) rather than the unemployment rate. The economy‚ with a large share
financed by remittances (currently about a third of GDP with a record 33% in 2024)‚
has been strengthened by the economic activity and domestic demand these
remittances generate. The cyclical structural unemployment/underemployment has
not vanished‚ however.

Tajikistan has a positive correlation (r = +0.639‚ p < 0.01)‚ and is the biggest
remittance recipient. The share of Tajikistan's remittances to GDP fluctuates between
40 and 50%‚ and it has high unemployment and under-employment. Since the
correlation is positive‚ this means that in the mid-2000s or the early-2010s‚ when
remittances were high in Tajikistan‚ unemployment was also high and when there was
a fall in remittances‚ as in 2009 or around 2015‚ unemployment tended to decrease.
The disincentive effect is one explanation for this‚ as remittances were keeping many
Tajiks of working-age in rural areas from taking up employment as long as they
received remittances from abroad. Tajikistan also saw similar shocks‚ as tens of
thousands of migrant workers returned during the 2009 Russian crisis and the 2015-
2016 Russian recession‚ temporarily increasing the labor supply without providing
sufficient opportunities to absorb it‚ increasing unemployment (Kireyev et al.‚ 2017).
Where increased local labor supply has been driven by the economy or policy‚ such
as by temporary declines in remittances or travel restrictions during the 2020
coronavirus pandemic‚ unemployment statistics have decreased (1) because migrants
abroad were not classified as unemployed‚ and/or (2) some returnees may leave the
labor force or take informal jobs. In any case‚ the positive correlation is evidence
against the idea that remittances have compensated for a labor shortage in Tajikistan.
If this were the case‚ we would expect to see a much higher level of domestic labor
market participation in Tajikistan‚ which currently has the lowest participation rate in
Central Asia. While this is consistent with the literature regarding remittances
reducing labor supply and increasing dependency (Kartošnja & Rahmon‚ 2020)‚ this
does not mean that remittances are the answer for Tajikistan. Despite the huge
volumes of remittance over several years‚ underemployment is still a major issue
facing Tajikistan.

In summary‚ one country (Kyrgyzstan) has a strong evidence of remittances and labor
market outcomes being positively correlated (lower unemployment)‚ while two others
(Tajikistan and Moldova) have a negative correlation between remittances and labor
market outcomes (higher unemployment). Analysis for Nepal did not confirm the
correlation. The comparison between the three countries suggests that country-level
factors such as demographics‚ domestic policy‚ and the purpose/locations of
migration are key determinants of its sign. The effect of remittances on the labor

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