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Analyzing the Dual Impact of Remittances: A Case Study on Labor Supply in Jamaica

Explore the effects of remittances on labor supply in Jamaica through a general equilibrium analysis. Discover implications, policy options, and the potential flip side of remittance flows.

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Analyzing the Dual Impact of Remittances: A Case Study on Labor Supply in Jamaica

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  1. Do remittances have a flip side? A general equilibrium analysis of remittances, labor supply responses and policy options for Jamaica Maurizio Bussolo and Denis Medvedev Development Prospects Group

  2. Outline • What is the “flip side”? • Effects of remittances • Model setup • Description of simulations • Main findings • Sensitivity analysis • Conclusions

  3. 1. What is the “flip side”?

  4. 1. What is the “flip side”? Average Weekly Real Wage (CPI, 1995=100)

  5. 1. What is the “flip side”?

  6. 2. Effects of remittances • Similar to aid flows? (Connell and Brown, 2005) • What about labor supply? • Endogeneity problems • In Mexico, the sign varies (Amuedo-Dorantes and Pozo, 2005) • In Nicaragua and Philippines – negative sign (Funkhouser, 1992; Rodriguez and Tiongson, 2001) • In Jamaica – negative sign (Kim, 2006)

  7. 3. Model setup • Single-country CGE model • Comparative statics • Nested CES production structure • Freely mobile factors • Savings-driven investment • Armington assumption • Endogenous labor supply

  8. 3. Model setup

  9. 3. Model setup • Single-country CGE model • Comparative statics • Nested CES production structure • Inter-sectoral factor mobility • Savings-driven investment • Armington assumption • Endogenous labor supply

  10. 3. Model setup Maximize subject to

  11. 3. Model setup

  12. 4. Description of simulations • Simulation a): 10 percent increase in the level of remittances with respect to their 2002 value • Simulation b): simulation a) plus 25 percent reduction in payroll taxes • Simulation c): simulation b) plus compensatory sales taxesto get a public revenue-neutral policy response

  13. 5. Main results: simulation a) -3,822 -4,563

  14. 5. Main results: simulation a)

  15. Simulation a Simulation b 5. Main results: simulation b) -3,822 -4,563 -1,061 -2,424

  16. 5. Main results: simulation b) Simulation a Simulation b

  17. Simulation a Simulation c 5. Main results: simulation c) -3,814 -4,552 -808 -2,052

  18. 5. Main results: simulation c) Simulation a Simulation c

  19. 6. Sensitivity analysis

  20. 6. Sensitivity analysis

  21. Simulation a Simulation c 6. Sensitivity analysis -6,7903,200 -11,048 1,848

  22. 6. Sensitivity analysis Simulation a Simulation c

  23. 7. Conclusions • Remittances are not “bad” • “Flip side” • Competitiveness • Dynamic consequences • Policy may help • Tax shift • Distributional effects

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