Consumption smoothing via migration and remittances

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Atlanta Fed Research Economist Federico Mandelman and Andrei Zlate, a PhD candidate in economics at Boston College, have prepared a paper analyzing the role that of migration and remittances during the business cycle. The data they present indicate that when the U.S. economy has outperformed Mexico’s, there were usually more attempted illegal crossings into the United States.

The flow of remittances to Mexico increases during boom times in the U.S. economy as well as during recessions in Mexico.  During economic expansions, immigrant labor becomes relatively scarce, as the increase in the number of immigrants does not keep up with the increase in labor demand. Thus immigrants receive relative higher wages and send larger remittances. The opposite occurs during recessions, when immigrant labor becomes relatively abundant and immigrant wages decline. Border enforcement discourages temporary return migration, as it makes more difficult to re-enter once the economic conditions improve in the recipient economy.

Authors

Dilip Ratha

Manager, Migration and Remittances Unit and Head, KNOMAD, Global Indicators Group, World Bank

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Tanzanite
February 13, 2009

What this tells us is that this next year may see a drop in illegal immigration to the US which may also increase the depth of the recessions as access to cheaper labor disappears in the US and forces businesses to spend more in lean times.