Welfare implications of remittances controlling for household employment decisions

Poverty and instability in the Philippines had caused many Filipino households to follow a labor emigration strategy, where they send members abroad to work, to combat the economic hardships experienced in the country. Part of this strategic plan is the receipt of remittances. The size and impact of remittances had raised the interest of many researchers, yet due to the different data and methods used, the result had yet been conclusive. Studies have claimed that remittances decrease the labor force participation of household members and increase dependency among the households. If so, members in the home country would then be treating the migrant workers as milking cows where the returns of the sacrifices made by the migrants are not fully maximize. Using the FIES and LFS of the year 2000, this study will investigate on the negative effect of remittances on the labor force participation of Filipino household members. In addition, the study will also examine the welfare implications of the sent money given the employment decisions of the household members. The study utilizes a two-stage regression model where employment within the household is regressed with instrumental variables to produce an estimated variable for employment, then regressing the log of consumption using the estimated variable. Results have shown that remittances do decrease the labor force participation of household members. Not to mention that given the recipient members\u27 decision to be out of the labor force, their welfare is considerably higher compared to a household with full employment yet not receiving remittances. For some reason, remittances compared to non-labor income have a greater negative effect on the employment of household members. Remittances may be seen as a more stable source of income for households thus there is a greater dependency of households on remittances than non-labor income. The results of the study are disturbing and have major policy implications. The continuous encouragement on labor emigration would have its social consequences in the long run, it is important that we start to use the remitted money in productive uses. Government policies and the creation of other productive investments where recipient households can transfer the received income would help in maximizing remittances. Definitely, the development potential of worker\u27s remittances can definitely be improved. Let us not forget all the sacrifices and hard work done by the migrants to earn these moneys