Remittances and Labor Supply: Evidence from Tunisia

Abstract

The objective is to present our contribution to the theoretical literature through a simple theoretical model dealing with the effect of remittances on the labor market of the origin countries and on the other hand to test this relationship empirically in the case of Tunisia. The methodology used consists of estimating a panel of the nine main destinations of the Tunisian migrants in Europe between 1997 and 2017. The empirical results show that the main factors explaining the decision to emigrate are the economic factors related mainly to the income differential, the demographic factors related to the differential age structure of the origin and host populations, and the cultural factors linked basically to the language mastery. Indeed, the migrant stocks are one of the main determinants of the remittances to Tunisia. But there are other variables that do not lack importance such as the economic conditions linked by the host countries. This shows that Tunisian migrants react more to economic conditions in European countries than in Tunisia. The economic situation of European countries dominates the number of emigrants as an explanatory factor for the amount of transfers from Tunisian emigrants. Similarly, the results confirm that an increase in remittances significantly reduces the demand for employment and therefore increases the unemployment rate. This positive correlation reveals that the impact of demographic changes on the effect of remittances occurs through an increase in unemployment due to the aging of the population, which coincides with the case of Tunisia going through a demographic transition period.