Tuesday, September 20, 2005

What is impact of remittances?

El Salvador has a population of 6.7 million, but approximately 2.5 million of those citizens live in foreign countries, primarily the US. Those emigrants send back more than $2.5 billion annually in family remittances ("remesas" in Spanish), an amount which constitutes almost a sixth of El Salvador's economy.

What is the impact of such an inflow? All sides appear to agree that remittances have played a major role in the reduction of extreme poverty in the country over the 13 years since the end of the civil war. Government programs have not reduced poverty in the country, but the industriousness of Salvadorans who make their way North and send money back to their homeland has.

Recent news reports have asserted that some business owners and others in the government believe that remittances are having a detrimental impact on the labor force in El Salvador. La Opinion has an article this week citing business owners complaining that they cannot obtain workers because the workers are satisfied to just live on remittances coming from relatives in the US. Agricultural interests looking for workers on coffee, sugar and cotton plantations are reportedly having difficulty finding workers.

The Salvadoran blog Hunnapuh points to an article in La Prensa on this subject. La Prensa asserts that the remittances are making Salvadorans lazy. 23% of Salvadoran households receive remittances, and La Prensa asserts that the vast majority of that income is spent on imported goods. Hunnapuh asserts that the damage to the economy from remittances is not that it makes Salvadorans lazy, but that the flow of prosperity from the North leads Salvadorans of all walks of life to want to emigrate. How can you call them lazy when they work 12 hours a day and sleep 10 persons in a small apartment when they arrive in the US so that they can send money back home?

The assertion of LaPrensa that remittances are spent primarily on foreign goods is partly contradicted by a 2004 study which showed that at least 80% of remittances are used for basic household maintenance like food, education and medicine.

The lament of business owners that they cannot find enough workers in El Salvador should not be taken as a sign that El Salvador has a labor shortage. What business owners are really complaining about is that they cannot attract workers at wages as low as before. When more people lived in extreme poverty, there was a greater number of persons desperate enough to work at the wages being offered. For families where remittances have removed that pain of extreme poverty, there is a greater opportunity to refuse to work unless a higher wage is paid. Offer higher wages and there will be workers available -- a government which prides itself on free market economics, like the Saca government does, ought to understand the law of supply and demand.


Paul McGuire said...

Great point. I found that the people of El Salvador are extremely hard working. I agree that remittances might take the edge off extreme poverty, but they still are very poor.

It is a terrible shame that the government does not seem to take more of an interest in its own people. During our visit, we heard many stories of how the government neglected health care, education and the general welfare of the people.

I guess it is up to the people of El Salvador to look after themselves.

boz said...

You say that business leaders are complaining, but then you say that President Saca should understand better. I know that Saca and the business community are close, but I'm not sure that's fair. Saca hasn't done anything yet to block remittances and I don't think he has any plans to do so. Let me know if I'm wrong.

Tim said...


Your point is well taken. Saca has certainly not done anything to block remittances, and part of his diplomatic policy with the US is aimed at making sure that Salvadorans living in the US under Temporary Protected Status do not need to return home so that the flow of remittances can keep coming.

Still, my basic point is that there has been a recent drum beat from business and the conservative press on the theme of "remittances are creating a lazy population." (And the Saca administration is an ally of both business and the mass media). It is similar to the refrain in the US that public assistance creates a class of poor persons unwilling to work for a living.

Anonymous said...

How about money laundry? Some people suspect that much of the money that enter the country as remittances come from money laundry. But it is difficult to investigate, taking into account that there is not an investigative press and institutions are so corrupt.