Do Remittances Have a Flip Side? A General Equilibrium Analysis of Remittances, Labor Supply Responses, and Policy Options for Jamaica

Econometric analysis has established a negative relationship between labor supply and remittances in Jamaica. The authors incorporate this ex-post evidence in a general equilibrium model to investigate economywide effects of increased remittance inflows. In this model, remittances reduce labor force participation by increasing the reservation wages of recipients. This exacerbates the real exchange rate appreciation, hurting Jamaica's export base and small manufacturing import-competing sector. Within the narrow margins of maneuver of a highly indebted government, the authors show that a revenue-neutral policy response of a simultaneous reduction in payroll taxes and increase in sales taxes can effectively counteract these potentially negative effects of remittances.

Bibliographic Details

Main Authors:	Bussolo, Maurizio, Medvedev, Denis
Language:	English
Published:	World Bank, Washington, DC 2007-03
Subjects:	AGGREGATE EMPLOYMENT, AGGREGATE LEVEL, AGRICULTURE, AVERAGE ANNUAL GROWTH, AVERAGE WAGES, BARGAINING POWER, BARRIERS TO ENTRY, BENCHMARK, BLACK MARKET, BUDGET CONSTRAINTS, CHANGE IN LABOR SUPPLY, COMMERCE, COMPETITIVENESS, CONSUMER PRICE, CONSUMER PRICE INFLATION, CONSUMERS, CONSUMPTION DEMAND, CONSUMPTION GOODS, CURRENT ACCOUNT DEFICIT, DEBT, DEMAND FUNCTION, DEMAND FUNCTIONS, DISPOSABLE INCOME, DISTRIBUTION OF REMITTANCES, DOMESTIC MARKET, DOWNWARD PRESSURE, DYNAMIC ADJUSTMENT, ECONOMETRIC ANALYSIS, ECONOMIC DEVELOPMENT, ECONOMIC GROWTH, ECONOMIC PERFORMANCE, EFFECTS OF REMITTANCES, ELASTICITY, EMPLOYEE, EMPLOYMENT LEVEL, EMPLOYMENT LIKELIHOOD, EQUILIBRIUM, EQUILIBRIUM LEVEL, EQUILIBRIUM PRICES, EVOLUTION OF REMITTANCES, EXCHANGE RATE, EXPENDITURE, EXPENDITURES, EXPORTS, FACTOR DEMAND, FACTOR PRICES, FACTOR RETURNS, FEMALE FAMILY MEMBERS, FEMALE LABOR, FEMALE LABOR FORCE, FIRING COST, FIRING COSTS, FISCAL POLICY, FLOWS OF REMITTANCES, GDP, GENERAL EQUILIBRIUM ANALYSIS, GOVERNMENT EXPENDITURE, GROWTH RATE, GROWTH RATES, HIGH UNEMPLOYMENT, HIGH UNEMPLOYMENT RATE, HIGH UNEMPLOYMENT RATES, HOUSEHOLD CONSUMPTION, HOUSEHOLD INCOME, HOUSEHOLD SURVEYS, HUMAN CAPITAL, IMPACT OF REMITTANCES, IMPORTANCE OF REMITTANCES, INCOME DISTRIBUTION, INCOME EFFECT, INCOME ELASTICITIES, INCOME TAXES, INCOMES, INCREASE IN LABOR, INCREASE IN REMITTANCES, INDUSTRIAL RELATIONS, INFLATION, INFLATION RATES, INTEREST RATES, INTERNATIONAL MARKETS, INTERNATIONAL REMITTANCE, INTERNATIONAL REMITTANCES, INTERNATIONAL TRADE, JOB MARKET, JOB OFFERS, JOB SECURITY, LABOR COSTS, LABOR DEMAND, LABOR FORCE, LABOR FORCE PARTICIPATION, LABOR MARKET, LABOR MARKET PERFORMANCE, LABOR MARKET REGULATIONS, LABOR MARKET RIGIDITY, LABOR MARKETS, LABOR SUPPLY, LABOR UNION, LABOR UNIONS, MACROECONOMIC EFFECTS, MACROECONOMIC RESULTS, MARKET CONDITIONS, MERCHANDISE, MERCHANDISE EXPORTS, MERCHANDISE IMPORTS, MIGRANTS, MINIMUM WAGE, MINIMUM WAGES, MONETARY POLICY, NON-WAGE COSTS, NORMAL GOOD, OPEN ECONOMY, OPPORTUNITY COST, PAYROLL TAX, PAYROLL TAXES, PRELIMINARY ANALYSIS, PRICE CHANGE, PRICE INCREASE, PRIVATE SERVICES, PRODUCER PRICES, PRODUCTION INCREASES, PROTECTIONISM, PUBLIC SECTOR EMPLOYMENT, PUBLIC SERVICES, REAL GDP, REAL WAGES, RECIPIENT COUNTRIES, RECIPIENT HOUSEHOLDS, RELATIVE PRICES, REMITTANCE, REMITTANCE FLOWS, REMITTANCE IMPACT, REMITTANCE INFLOWS, REMITTANCE RECEIPTS, REMITTANCES, SALES, SAVINGS, SERVICE SECTORS, SEVERANCE PAYMENTS, SMALL MANUFACTURING, SPREAD, SUBSTITUTION, SUBSTITUTION EFFECT, SUPPLY CURVE, SUPPLY EQUATION, SUPPLY FUNCTION, TAX REVENUES, TAXATION, TOTAL WAGE, TRADE BALANCE, TRANSFER MONEY, TRINIDAD AND TOBAGO, UNEMPLOYED, UNSKILLED LABOR, UNSKILLED WORKERS, UTILITY FUNCTION, VALUE ADDED, VOLATILITY, VOLUME OF REMITTANCES, WAGE GROWTH, WAGE RATE, WORKER, WORKERS, WORKING CONDITIONS,
Online Access:	http://documents.worldbank.org/curated/en/2007/03/7405821/remittances-flip-side-general-equilibrium-analysis-remittances-labor-supply-responses-policy-options-jamaica https://hdl.handle.net/10986/7159
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