Monica Lambon-Quayefio, University of Ghana, Department of Economics Empirical Analysis of Remittances, Reservation Wages and Labour Force Participation: Evidence from Ghana Monica Lambon-Quayefio, University of Ghana, Department of Economics

Background Remittance flows have been established to have very significant influences on the growth trajectories of many developing countries Value of remittances have outweighed FDI in most SSA and have helped stabilize the BOPs of many SSA economies. (Addison, 2004;Quartey, 2006, World Bank, 2014) In Ghana: increased from $1.2bn to $18bn from 2002 to 2012 (BoG,2002;2012) : 2000 PR was at $32m 2011- $151m. In Ghana, migrant remittances from abroad constitutes 13% of GDP.( Mazzucato et. al,2008)

The increased levels of remittances over the past few years may be attributed to the increased use of formal channels which provides accurate statistics. ( Chami et al. 2008) Studies ( macro and micro) have been carried out to establish the relationship between remittances and various economic outcomes. Macro- nexus between remittance flows and economic growth (Adams and Page, 2005; Woodruff and Zenteno, 2007; Catrinescu et al., 2009; Lartey,2011 and Ramirez, 2013) Micro studies: remittance flows and household welfare, poverty reduction, education, health etc.(Quartey and Blankson,2004; Awumbila and Ardayfio- Shandorf,2008; Gyimah-Brempong and Asiedu,2014)

Remittance Flows and Labour outcomes: Channels Remittances are likely to affect labour supply in two different ways. Human capital investment/ Entrepreneurial activities => improved earning potential and employment of younger household members. ( Yang and Martinez, 2006; Yang ,2009) Dependency effect among recipients => discourages them from fully participating in the local labour force. Comfortable to trade off working hrs for leisure. (Bislimi and Kayhan, 2007; Bussolo and Medvedev (2008)

Remittance Flows and Labour Outcomes: Literature Review Three main strands of results exist Negative relationship : reduced hrs worked/ increased reservation wage Elezaj et al.,- Kosovo (2012), Maurizo and Dennis- Jamaica (2007).Matshe and Young- Zimbabwe (2004) Positive relationship : increased self employment( small scale businesses) Funkhouser (1992) ; Woodruff and Zeneto (2004)- Mexico No relationship Cox- Edwards and Rodriguez-Oreggia (2006) Relationship not known a priori-country specific and may depend on country context, migrant selectivity and use of remittances. ( de Haas, 2009)

Research Objectives In the case of Ghana, it is important to determine the relationship between remittance flows and labour outcomes as these ( labour supply etc.) have important implications for the growth of the local economy. To determine whether or not remittances has a deleterious effect on labour outcomes in Ghana Specifically: reservation wages Desire to seek employment

Data 6th round of (GLSS 6) which has a special focus on labour market issues and contains detailed information on labour wages, conditions of service, labour supply as well as reservation wages. Nationally representative and contains recent information on about 18000 households and over 16000 individuals The main dependent variables: the lowest amount of money that individuals are willing to work ( Reservation Wage) Whether or not the individual sought for employment.

Figure 1: First Use of Remittances Received

Descriptive Statistics Table1: Reservation Wages (GHS) by Educational Levels   Education Level Male Sample Female Sample Full Sample No Education 5.6 3.9 4.5 Basic 3.5 3.8 3.7 Secondary 4.8 4.7 Post -Secondary 5.7 6.3 5.8 Of all the people with no education, men seem to have a higher reservation wage more than women: Uneducated men may be engaged in physically more challenging jobs of which they might demand higher wages than women: Of people with post secondary education, women have higher reservation wages due to the high opportunity cost associated with working eg. Forgoing child bearing so may demand high reservation wages to compensate.

Figure 2: Reservation Wage (GHS) by Location Type Difference in reservation wages are statistically significant at 1%

Study Variables Reservation wage (4.57) Seek for a job (54.5%) Remittance receiving hh (6.78%) Remittance Value (723.55) Frequency of remittance (47.26%) Source of remittance (79.6%) Household income Unemployment status Age Sex Marital Status Location Education Region of Residence

Methodology A major empirical concern in the literature is the potential endogeneity between remittances and the labour outcomes. First source: non-randomness of migrants ( a shock in the form of death of the family head etc) Second source: reverse causality- a migrant might send money home just because someone is jobless within the household

Methodology Contd To get around the issue of endogeneity, many studies have used the instrumental variable approach. Examples of instruments: migrant networks Instrument used in the study: presence of a returned migrant within the household. Endogeneity Test: Main variabes of interest not endogenous Proceed to use OLS/ Probit estimation

(Probit )Marginal Effects Variable Reservation Wage OLS Seeking for a Job (Probit )Marginal Effects hh_remit 0.1185(0.43) -0.1722(-1.79)** remit_regular 0.3571 (2.49)*** 6.46e(0.37) domestic_remit -0.5447(-3.01)*** -0.0695(-1.18) hh_size -0.0589(-2.33)** -0.0090(-1.11) unemployed 2.934(2.17)** - age 0.0394(1.02) -0.0016(-0.71) urban 0.5136(3.19)*** 0.1145(2.26)** Male 0.2712(1.94)** 0.0544(1.17) At least Primary 0.5624(2.90)** 0.0417(0.65)) Observations 383 382 R-Square 32.9% 20.6%

Main Results Regularity of remittances and source of remittances seem to have a significant influence on the reservation wages of individuals. Regular transfer of remittances may increase reservation wages by about 36%. Probit estimation suggest that individuals from households that receive remittances are 17% less likely to seek for employment. Hseholds may see remittances as additional source of income to augments ‘normal’ hsehold income and as such may reduce incentives for people to go out and look for jobs

Main Results Contd. Domestic remittances seem to have a negative influence on reservation wages. Reduced reservation wages by about 54%. domestic remittances are usually lower in value and as such additional income from domestic remittances may not be adequate to raise the opportunity cost of working at lower wages. ( Chami et al.,2005; Amuedo-Dorantes and Pozo ;2006 and Elezaj et. al, 2012)

Conclusion and Recommendation Findings from this study suggest a negative relationship between remittance recipient households and the proclivity to seek employment. This suggests that remittances may have a ‘spoil effect’ on labour supply. The study shows that the frequency of the remittance as well as the source of remittance seems to be more important in influencing the reservation wage than the mere fact that the household receives remittances. Regular remittance flows appear to increase the reservation wage while domestic remittances appear to dampen the reservation wage.

Recommendations Further studies, using panel data over long periods be employed to critically analyse the labour supply behaviour of remittance recipient households as the remittance amount and its frequency fluctuate. This is likely to help enhance our understanding of this seeming ‘spoil effect’ in order to better inform policy that maximizes the use of remittances for the overall development of the economy.

Thank You!