Labour market performance and migration flows - European ...

European CommissionOccasional Paper 60, Volume Iconclusion for Sub-Saharan Africa. Needless to say, these effects can give rise to a significant indirectimpact on the labour market through the ensuing job-creation effect.Macroeconomic impact aside, remittances are often thought to influence the labour market byaffecting the behaviour of potential workers. Remittances can exert an influence on recipients’behaviour on the labour market through two main channels, namely the income effect that modifiesthe willingness to work in exchange for a wage, be it through higher reservations wages (thusincreasing unemployment) or through a reduction in labour participation rates, or through the impacton the demand for labour in family-run activities which is determined by the use of remittances tofinance small-scale productive investments.The issue of remittance use by migrants has attracted the greatest interest and debate. Some argue thatremittances are used primarily for the purchase of land and housing and general household consumption,rather than “productive investment” and conclude that remittances thus do little to stimulate developmentin the home country. Others believe that migrants do save and invest, that expenditure on land andhousing are rational under prevailing conditions (they frequently offer better rates of return or are a betterstore of value than other available investments) and that expenditure on housing and consumption havepositive multiplier effects on the whole economy. The stimulus that migration – via remittances – bringsto private demand produces substantial effects on the labour market only inasmuch it is directed towardsdomestically produced goods and services. Regrettably, as Gallina (2006) observes, there is limitedinformation on the pattern of remittance uses in AMC countries. Some information – albeit coming froma survey with a very limited coverage- are provided by EIB (2006), which analyzed the distribution ofremittances across alternative budget items in all AMCs but Palestine. Table 5.3.1 reports the mainfindings from this survey, which evidences that everyday expenses absorb most of the income arisingfrom remittances, while limited resources are devoted to investments. Schramm (2006b) providesevidence – for Tunisia, Morocco and Egypt – that suggests that basic consumption needs (food, heat andclothing) absorb most of the income from remittances.Table 5.3.1 Use of remittances in AMCs (% of total remittances)DailyexpensesPayment ofschool feesBuildinga houseSetting upa companyInvestmentsOtherNumber ofintervieweesAlgeria 45 13 23 3 5 11 64Egypt 43 12 18 - 15 12 31Jordan 74 16 4 - 6 - 40Lebanon 56 24 5 5 5 5 41Morocco 46 31 16 - 5 2 40Tunisia - 23 34 2 16 25 40Syria 61 11 8 - - 20 49Source: EIB (2006)But remittances and the prospect to migrate can also influence the supply side of the labour marketthrough a variety of channels. The prospect for migration can have an impact on the participation rateand on the reservation wages of domestic workers (Fan and Stark, 2007). This argument entails that therelationship between unemployment and migration runs in both directions: on the one hand, a high levelof unemployment represents a powerful push factor for migration, while, on the other, the prospect tomigrate can exert an upward pressure on the unemployment level itself. In AMCs, this effect is perhapsmost evident in Lebanon, mostly linked to high private educational investments and a high cost of living(see National Background Paper, Chaaban 2009), which discourages Lebanese workers from engaging inlow-skilled jobs.74