Remittances and Labour Supply Revisited: New Evidence from the Macedonian Behavioural Tax and Benefit Microsimulation Model

Abstract

The objective of the paper is to revisit the role of remittances for labour-supply responses. Previous studies documented conflicting results, while the key methodological concern – remittances’ endogeneity about labour supply – has not been resolved convincingly. We construct behavioural tax and benefit microsimulation model and simulate labour-market responses of singles and couples had remittances not existed in their households. This is a novel methodological approach avoiding the usual trap of utilisation of inappropriate instruments to remittances. Our results suggest that remittances are prevalently associated with lower labour-market activity, especially for women. However, the labour-supply response is found quite feeble and only in single families. Hence, while previous findings are not entirely rebutted, they may have been overstated and are highly dependent on the construct of the receiving household.