Impact of Remittances on Labour Supply and Occupational Choice in Rural India

Abstract

This study examines the impact of remittances on the labour market decisions of left behind adult family members in rural households in India. Using both selectivity and endogeniety corrected models, the results find evidence of a dependency effect wherein individuals belonging to remittance receiving households are less inclined to participate in the labour market. These effects are much stronger in case of international remittances. Incidentally, the reduction in work participation was found to larger for males than females. While, on the one hand, domestic remittances were observed to increase the intensity of labour supplied by households, international remittances, on the other hand, were found to be lowering hours of work done by left behind family members. Further, domestic remittances increase the proportion of labour supplied to self-employment activities in agriculture; international remittances, on the contrary, were found to be pushing workers into non-agricultural activities. The differences in the impact of domestic and international remittances on labour market participation and work intensity can be attributed to the differences in absolute size of remittances available per capita from the two alternate sources while unobservable household characteristics and locational factors can explain the variations in intra-household labour allocation across activities.