Uzbekistan: The impact of remittances and migration on the labor supply decisions in rural households of Uzbekistan. By Bakhrom Radjabov.

Bakhrom Radjabov. MA in Global Political Economy, University of Kassel, Germany

In depth research on labor supply in rural areas of Uzbekistan is required to cover a multiple aspects of this trend affected by the international migration and remittances. This piece should be considered as an abstract of more extensive study researching labor supply decisions in rural households of Uzbekistan.

Introduction

The migrant remittances sent to Uzbekistan play a pivotal role in country’s economic development and well-being of its population. According to the Outlook for Remittance Flows 2012-14, Sanket et.al (2011) remittance flows to developing countries exceeded $350 billion in 2011. Following this rebound in 2011, the growth of remittance flows to developing countries was expected to continue at 7-8 percent rate annually to reach $441 billion by 2014. World Bank’s Migration and Remittance Flows: Recent Trends and Outlook, Report (2013-2016) reports that remittance flows to developing countries were estimated at $404 billion in 2013, up 3.5 percent compared with 2012. In addition, the growth in remittance flows to developing countries is expected to accelerate to an annual average of 8.4 percent over the next years, raising flows to $516 billion in 2016.

The post-Soviet Central Asia did not become an exception to the case of emigration and seasonal outflow of the labor force from the region as well as the inflow of remittances in different forms. For instance, in  Migration and Development Brief, Rhata, D. et.al (2013) reported that developing European and Central Asian countries received remittance inflows of about $42.6 billion in 2013, 10 percent more than in 2012. Growth in 2014-2016 was projected to remain robust, though the ongoing geopolitical crisis in the Ukraine brings substantial uncertainty. In this context total average costs for sending remittances to European and Central Asian countries fell slightly to 6.5 percent in the first quarter of 2014, compared with 6.8 percent a year earlier.

To specify, one of the most recent studies which has focused on the implications of migration and remittances on Uzbekistan conducted jointly by the UNDP country office in Tashkent and Swiss Embassy in Uzbekistan titled “Labour Migration in Uzbekistan: “Social, Legal and Gender Aspects” covered the issues related to external and internal labor migration. The study summarized the results of sociological surveys held in Uzbekistan from 2006 to 2007 dealing with external and internal migration as well as provided recommendations on modifying regulations of migration process and ensuring the rights of labor migrants.

However, the analysis of the implications of migration and remittances on the domestic labor market and labor supply in rural households is completely left out of the mainstream research. The most recent empirical study examining the impact of migration and remittances on the rural households was conducted by Khasanov (2009) on socio-economic dimensions of labor migration and remittances in rural households in Jarqurgon district of Surkhandarya province in Uzbekistan. Khasanov in his study found increasing consumption per capita and stronger remittances effect (investing remittances in housing and durable assets) in the poorest migrants sending households.

Given the long-term nature of migration and remittances, the author of this research looks for recent evidence of their impact on Uzbekistan and observes the trend in labor supply decision in order to deal with the potential relocation of labor supply in rural households influenced by the migration and remittance receipts.

Research design/Methodology

Primarily following the model applied by Dermendzhieva in her study in Albania this research intends to address the issues of labor supply in rural areas of Uzbekistan. Thus, Dermendzhieva (2010) suggests a Linear Probability Model (LPM) which is estimated for the probability of a household member to be working on the subsamples of men and women household members separately. In this context it is also suggested to analyze separately only the married women household members, as their labor supply behavior is likely to differ from the labor supply behavior of the single women.

For each subsample Dermendzhieva estimates the following equation:

Yi = a0 + a1 Mi + a2Ri + a3Xi + εi    (1.1)

Yi = 1[Yi > 0]         (1.2)

εi ~ Normal(0,σ2)  (1.3)

where Y is a binary dependent variable denoting employment, M is a binary variable for the presence of at least one migrant household member, R is a binary variable for remittance income and X is a vector of exogenous individual and household characteristics, which likely affect individual labor supply, such as age, education, place of residence, presence of young children, other non-labor income, and the regional unemployment rate.

Analyzing the effects of remittances on the labor supply relocation researcher also considers the following assumption of Jerger (2011) that some windfall income might reduce incentives to work, i.e. limit labor supply as a matter of rational choice – this might be even more so in the presence of information asymmetries between sender and recipients of remittances.

In this context the following model applied by Jerger (2011) suggests that the decision of some household that receives remittances R (real, in terms of the consumption good C, may work for L hours (at most Lmax), receiving the real wage w per hour:

Then the budget constraint reads: C = R + w*L

Remittances ensure some minimum level of consumption Cmin even in the absence of labor income: Cmin = R

Time outside the labor market is defined by F = Lmax – L

The households values both consumption C and free time F (positive but declining marginal utility in both), i.e. U = U(C; F), where UC; UF > 0 and UCC; UFF < 0

The problem then reads: max L = U(C; F) s.t. C = R + w*L = R + w * (Lmax – F) 

It is believed that the application of this model could contribute to explanation of the rationale behind the labor relocation (changes in labor supply) in remittances receiving households.

 

Findings:

The following conclusive points can be highlighted:

 

  • The receipt of the remittances in the presence of information asymmetries between sender and recipients of remittances might reduce incentives to work or drive the labor supply out of the one sector (e.g. agriculture), but does not simultaneously lead to its relocation towards the other sectors of the rural economy;
  • Simultaneously, out-migration from rural households might cause household labor losses and a decline in households’ productivity which might not be enhanced in the long run with the receipt of remittances. In this context, out-migration obviously has a direct effect on the labor supply in the rural households.

If to look more at indirect effects on labor supply relocation, labor supply decisions based on the wage level and income distribution has to be determined empirically and might differ substantially across time and regions of the households’ location.

In this regards, if to recall Jerger’s argument that in the presence of information asymmetries between sender and recipients of remittances some windfall income might reduce incentives to work, and limit labor supply as a matter of rational choice the author refers to the findings of Khasanov from Jarqurgon district of Surkhandarya province confirming the reduction of incentive to work for households members receiving remittances. This is also due to the relatively low wage rate in Jarqurgon district discouraging labor supply. Thus, at this point it might be assumed that either remittances sent to the households do not stimulate additional job creation in rural areas but fuel further repeated labor migration or/also available jobs in rural areas are less attractive for rural population due to lower income perspectives in comparison with income from remittances.

Another reason of declining labor supply might be the insufficient number of jobs in formal sector. Thus, according to annual report of Ministry of Labor and Social Protection  of the republic of Uzbekistan in 2002-2006, labor supply in the formal sector exceeded the demand four times (MLSP, 2007, cit. in Khasanov: 30). Hence, further research proving or disproving these assumptions shall be conducted. This could be the next step towards rewarding research of the implications of migration and remittances covering unitary and collective models of labor supply decisions in households.

 

 

Brief Bibliography

Ambrosius, C., Fritz, B., Stiegler, U. (2008): Geldsendungen von Migranten – „Manna“ für die wirtschaftliche Entwicklung?, in GIGA Focus, No.10, pp.1-8.

 

Castles, S. (2004): “Why Migration policies fail”, in Ethnic and Racial Studies, Vol. 27, No.2, pp. 205-227

Do International Migration and Remittances Reduce Poverty in Developing Countries? World Development (2005): Vol. 33, No. 10, Elsevier Ltd, Great Britain http://www.earth.columbia.edu/cgsd/remittances/documents/Adams.2005b.pdf

 

Dülcke, D. (2012): ”yo manejo todo“: Focusing on women ‘who stay‘ in transnational migration. A case study of Quetzaltenango, Guatemala., Master thesis, July 2012, pp. 1-78.

Helmke, J. (2010): Remittances-led development: rebuilding old dependencies or a powerful source of human development? A view on Latin America: Vol.7, February 2010, pp. 1-161, Kassel: Kassel University Press.

Hertlein, S., Vadean, F. (2006): “Rücküberweisungen – Brückenschlag zwischen Migration und Entwicklung?“, in Focus Migration. Kurzdossier, No.5, September 2006, pp.1-9.

Kapur, D. (2004): Remittances: the new development mantra? United Nations conference on trade and development, G-24 discussion paper series, No. 29, April 2004, pp. 1- 19, available on-line: http://www.unctad.org/en/docs/gdsmdpbg2420045_en.pdf

Khasanov, S. (2009): International labor migration from Uzbekistan: trends, causes and consequences in rural areas. Rural case study of Jarqurgon district of Surkhandarya, Uzbekistan., Master thesis, July 2009, pp. 1-104.

Mohapatra, S. et.al (2011): World Bank Migration and Remittances Brief, Second edition, 2011, pp. 1-20, available on-line: http://siteresources.worldbank.org/INTLAC/Resources/Factbook2011-Ebook.pdf

Nguyen, L. et.al (2007): Editorial Introduction: Bringing the ‘Left Behind’ Back into View in Asia: a Framework for Understanding the ‘Migration-Left Behind Nexus’. In: Population, Space and Place, No. 13, 157-161.

Orozco, M., Ferro, A., (2007): “Worldwide Trends in International Remittances”, in Migrant Remittances, Vol.4, No.3, pp. 1-4.

Rhata, D. (2007): “Leveraging Remittances for Development”, Migration Policy Institute policy brief, June 2007, pp 1-14, available online: http://www.migrationpolicy.org/pubs/MigDevPB_062507.pdf

Rhata, D. et.al (2013): “Migration and Remittances: Recent Developments and Outlook”, Migration and Development brief, October 2013, pp 2-29, available online:

http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934-1288990760745/MigrationandDevelopmentBrief21.pdf

Rhata, D. et.al (2014): “Migration and Remittances: Recent Developments and Outlook”, Migration and Development brief, April 2014, pp 2-29, available online:

http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934-1288990760745/MigrationandDevelopmentBrief22.pdf

Stark, O & Robert E. B. Lucas (1988): Economic Development and Cultural Change, Vol. 36, No. 3 (Apr., 1988), pp. 465-481.

United Nations Development Programme, Gender Programme of Swiss Embassy (2008): Labour Migration in Uzbekistan: Social, Legal and Gender Aspects, Book, pp. 12-193, available on-line: http://www.undp.uz/en/publications/publication.php?id=153

Vasco, C. (2007): The impact of international Migration and Remittances on Agricultural production patterns, labor relationships and entrepreneurship. The case of rural Ecuador, Vol.9, February 2007, pp. 7-134, Kassel: Kassel University Press.

On-line publications (other):

Carling, J. (2005): “Migrant Remittances and Development Cooperation”. Retrieved November 19, 2009, from www.prio.no/files/file46220_carling_2005_migrant_remittances_and_development_cooperation.pdf

Carrasco, E., Ro, J. (2007): “Remittances and Development”. Retrieved November 19, 2009, from: www.uiowa.edu/ifdebook/ebook2/contents/part4-II.shtml

Dermendzhieva, Z. (2011): Migration, remittances and labor supply in Albania. Retrieved November 30, 2011, from:

http://siteresources.worldbank.org/INTECAREGTOPPOVRED/Resources/ZvezdaDERMENDZHIEVA.pdf

Dillon, A (2009). International Food Policy Research Institute, “Do household definitions matter in survey design? Results from a randomized survey experiment in Mali”. Retrieved November 19, 2009, from: http://siteresources.worldbank.org/INTFR/Resources/475459- 1259791405401/BeamanDillon_HHdef_mali.pdfFederal Reserve Bank of Dallas (2006): “Migration, Trade and Development”. Retrieved November 19, 2009, from: http://www.dallasfed.com/research/pubs/migration/migration.pdf#page=17

Advertisements