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

Table 5. Summary of remittance impact on labor market by country
Country Effect of remittances on Interpretation in terms of labor gap
unemployment compensation
Kyrgyzstan Negative effect: higher Remittances helped compensate for labor
remittances → lower loss; emigration reduced surplus labor and
unemployment (significant) remittances boosted domestic jobs
somewhat.
Moldova Positive effect: higher Remittances did not fill the labor gap;
remittances → higher possibly worsened it by encouraging
unemployment (significant) withdrawal from work or not creating jobs.
Nepal No clear effect: remittances ↑ Remittances compensated incomes but not
with no change in labor gaps; unemployment remained
unemployment (not significant) unchanged, indicating no impact on job
availability.
Tajikistan Positive effect: higher Remittances did not compensate labor loss;
remittances → higher labor utilization stayed low or even declined
unemployment (significant) as remittance income grew.

In accord with published comparative research‚ these results suggest that remittances
cannot resolve structural labor market problems. In the best-performing case
(Kyrgyzstan)‚ remittances have at least absorbed the open unemployment generated
during the transition. In the end‚ productive jobs that remove incentives to emigrate
in the first place are essential. In Tajikistan‚ this leads to disincentivization of entering
the domestic labor market and investing in human capital. In this worst-case scenario
the bulk of working age adults are economically inactive‚ even though the remittance
receipts amount to billions of dollars.

If the government wants to upgrade remittances into better labor market positions‚ it
needs additional policies to use remittances to invest in firms (i.e.‚ to make firms more
productive)‚ to stimulate structural change by shifting the economy from consumption
to production‚ to train labor to work in new industries when they return or remain on
the home front‚ etc. Otherwise remittances will be spent on consumption‚ fill the
foreign exchange gap‚ and be a form of insurance for the individual household‚ but
little more.

7. DISCUSSION: DO REMITTANCES COMPENSATE FOR EMIGRATION’S
LABOR GAPS?
Overall‚ it appears that the answer is‚ however‚ only partially‚ and not uniformly‚ yes.
Remittances do bring capital to the emigrants' home countries‚ with clear effects on
poverty. They also lead to indirect employment. For example‚ in Kyrgyzstan‚ mass
emigration and large inflows of remittances were associated with a sharp drop in
unemployment. In that narrow sense remittances (in the form of exported unemployed
labor and sent back home money) compensated for the lack of jobs domestically‚ i.e.‚

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