Page 98 - Azerbaijan State University of Economics

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

variation‚ remittances do not have a consistent influence on a country's unemployment
rate; for some countries remittances reduce unemployment‚ for others they actually
cause unemployment to increase. In the aggregate‚ however‚ the net effect is
negligible‚ which is hardly surprising given that remittances are unlikely to be an
unequivocal means to plug labor market gaps and the effects are likely to vary by
context. This model has a high R² (0.877) because it captures large between-country
variation. However‚ the model shows remittance does not do much of this once we
include country FE. This is important. You cannot really generalise that remittances
will always decrease or increase unemployment. The effect in a particular country on
its labor market or something else is specific to the country‚ and the remittances may
have other effects that are country-specific.

The pooled results suggest remittances do not automatically fill reductions in labor
supply. In the case of Kyrgyzstan‚ they did‚ in the case of Nepal‚ they did not‚ and in
the case of Tajikistan and Moldova‚ the opposite occurred. This means that unless
country-fixed effects are accounted for‚ an increase in remittances of one country
cannot be expected to always reduce unemployment in that country. The findings of
Carare et al. (2024) are consistent with remittances being a partial offset to
unemployment created by emigration: differences in country unemployment rates are
explained by characteristics of a country (demographics‚ economic diversification‚
governance) which determine the potential amount of labor that a country can absorb
(captured by country-fixed effects). Remittances are a secondary factor which are
sometimes helpful and at other times neither helpful nor harmful.

In Table 5‚ we summarise the main findings of the correlation and regression analyses
for each country and relate them to the notion of 'labor market gap compensation'.

Unemployment is not the only gap in the labor market‚ and in some countries‚ such
as Nepal and Tajikistan‚ it is not the largest. In this way‚ remittances allow the
underemployed to remain underemployed instead of unemployed. For example‚ since
the underemployed person is not unemployed because they work a few hours on the
family farm‚ remittances might keep that person working informally on the family
farm if not working formally in the labor market. In that sense‚ remittances may be
hiding‚ rather than closing‚ the labor gap‚ however.

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