Leaving For A Better Living: Migration and Remittances in LAC
June 14, 2019
Development is an uneven process. Cycles of prosperity and contraction are always accompanied by heterogeneity in outcomes: across sectors, across regions, across income groups. Such process, Albert Hirschman elegantly established about 60 years ago, constantly generates tension and demand for the redistribution of resources and power. Thus, conflict is inherent to development.
Prosperity, equity and peace always depends on the way in which tensions are processed. One way in which people adapt to tensions is by migrating, or “voting with their feet”. Almost 3% of the world’s population lives in a country different from the one they were born in. In LAC countries, the number of natives living abroad increased by 39% between 1990 and 2017 (although the flow speed slowed down since the beginning of this decade).
This Graph for Thought reveals the stocks of migrants in LAC through country of origin and destination from 1990 to 2017 (i.e. the number of foreign-born residents in a country at a given point in time). The data presented does not yet reflect the changing patterns of migration due to the latest wave of migration from Venezuela, into neighboring countries, which is estimated in more than 3 million people (UNHCR, 2019). In this figure- as of 2017, we see there were more than 20 million people born in an LAC country who currently live in the United States. This is almost triple the number in 1990. Of these 20 million Latin Americans living in the United States, more than half are from Mexico. Moreover, as a share in total population for countries of origin (not shown), 15% of those born in the Caribbean countries live abroad.
Why do people choose to leave their home country and move abroad? In economics, the discussion on the causes of migration derives from the notion that migration movements are motivated by the balance of wage differentials, the probability of finding a job, costs (pecuniary or otherwise) for different individuals. In other words, many people migrate in pursuit of greater economic opportunities and returns to their labor – and, contrary to popular belief, it is not just “lower- skilled” workers who migrate from poor countries to rich countries (“negative selection”). For example, a recent study found that in the case of Mexico, it is primarily young adults with moderately high levels of schooling that choose to migrate to the United States (“positive selection”). It is important to remember that while the pursuit of economic opportunities is a key “pull” factor for migrants, there are also many “push” factors which motivate people to leave their home countries – such as violence or lack of opportunities. Undeniably, violence and crime have been found to be key determinants among emigrants from the northern part of Central America. Indeed, 23%, 44% and 56% of individuals from Guatemala, El Salvador and Honduras respectively, who have been victims of crime more than once, report intentions to emigrate within the next three years.
As migrants earn better wages working abroad, they are able to send money to their respective families back home. Remittances are an integral source of income for many families in LAC countries. They represent the main source of income in 35% of Honduran households, 29% of Mexican and Guatemalan households, 16% of Dominican Republic households, and 6% of Salvadorian households. While remittances are crucial since they alleviate poverty and speed up growth – at the macro – level they also pose challenges as it might affect labor supply and appreciate exchange rates in recipient countries. Remittances have been increasing in LAC for eight consecutive years. According to a recent report led by the Inter-American Development Bank, remittances to LAC grew 9% in 2017 (the highest annual rate observed in 11 years) to reach USD 77.02 billion (roughly 7% of total LAC GDP of around USD 10 trillion). The following figure portrays the evolution of remittances inflows as a share of GDP ranked by country since 1980. Although Mexico has clearly received the largest amount of remittances, countries from Central America and the Caribbean are the ones that have historically received the highest level when the amount is compared to the size of their economies – including Haiti reaching a peak of remittances equivalent to a third of its GDP in 2017.
Migration in LAC is on the rise, and mostly driven by the people opting out of the social contract in places where development has resulted in unresolved, distributional tensions. However, for countries that choose to host migrants in a productive and inclusive manner, migration can represent an opportunity. While there is a lot of controversy over the impacts of migration to host country labor markets – the standard labor model of supply and demand (which is simplistically used to oppose migration by predicting a drop in wages due to increased labor supply) does not take into account the fact that supply and demand is differentiated by skillsets. Newcomers tend to compete with previous migrants, whom often have skillsets similar to theirs, rather than with host country workers. Research has actually found positive effects of immigration on the average wages of host- country workers. Moreover, immigration can bring the other important benefits to host countries such as higher levels of innovation, an increased labor supply with more diverse skills, fiscal support, and consumption. However, for migrants to assimilate and contribute productively, host countries need to (i) support their insertion to the host economies in order to enhance productivity, (ii) provide access to basic services and build social capital to promote inclusion and (iii) generate the adequate safety nets so migrant can become resilient.