Ralph Chami, Ekkehard Ernst, Connel Fullenkamp, and Anne Oeking
INTERNATIONAL MONETARY FUND
We present cross-country evidence on the impact of remittances on labor market outcomes.
Remittances appear to have a strong impact on both labor supply and labor demand in
recipient countries. These effects are highly significant and greater in size than those of
foreign direct investment or offcial development aid. On the supply side, remittances reduce
labor force participation and increase informality of the labor market. In addition, male and
female labor supply show significantly different sensitivities to remittances. On the demand
side, remittances reduce overall unemployment but benefit mostly lower-wage, lowerproductivity
nontradables industries at the expense of high-productivity, high-wage tradables
sectors. As a consequence, even though inequality declines as a result of larger remittances,
average wage and productivity growth declines, the latter more strongly than the former
leading to an increase in the labor income share. In fragile states, in contrast, remittances
impose a positive externality, possibly because the tradables sector tends to be
underdeveloped. Our findings indicate that reforms to foster inclusive growth need to take
into account the role of remittances in order to be successful.