Economic Shocks, Labor Migration and the Family Left Behind

Migration has been growing rapidly over the past decades, both within and across countries. International migration typically yields substantial earning gains to migrant workers but also to their families left behind through remittances. Remittance receipts have become a major source of income for migrant families in the developing world. These foreign income flows also imply that families at home are directly exposed to economic shocks abroad through their migrants. In his BSE Working Paper (1086), “Easy Come, Easy Go? Economic Shocks, Labor Migration and the Family Left Behind,” André Gröger investigates the impact of negative income shocks in migrant destination countries around the world on the domestic and international labor migration decisions of their family members in Vietnam. 

The effect on migration decisions

Economic downturns abroad can have ambiguous effects on the migration decisions of families at home. A negative shock can reduce migration due to its substitution effect: lower wages and employment opportunities make foreign labor markets less attractive, pushing families to reduce the amount of foreign labor supply through lower international migration. However, a negative shock can also increase migration: lower migrant wages and employment lead to a reduction of remittances making families left behind poorer. This income effect increases the incentive for additional migration to secure minimum consumption levels in the household. Thus, the aggregate migration effect depends on the relative magnitudes of income and substitution effects that households experience. Therefore, the migration effect may vary along households’ initial wealth distribution, depending on how strongly their budget is constrained.

André Gröger investigates this using a dataset of Vietnamese households with international migrants having left prior to the onset of the Great Recession. Data on households was collected in two rounds in 2008 and 2013, with the latter wave collected by the author. To establish the causal impact of the Great Recession on families left behind, he constructs measures of quasi exogenous labor market shocks by combining information on migrant’s labor market characteristics prior to departure with changes in unemployment rates at destination during the crisis years. To estimate the effects of the foreign labor market shock on families’ migration decisions, the author compares affected with unaffected households at origin depending on their migrant shock exposure abroad, before and after the Great Recession. 

Results and policy implications

The results show that the shocks led to large and heterogeneous changes in subsequent migration decisions, labor allocation, and the demographic composition among families left behind in Vietnam. Poorer households reduced domestic and increased international labor migration in response to the shock, which suggests that the income effect outweighed the substitution effect for this group. On the other hand, richer households remained largely unaffected by the shock and did not alter their migration decisions. These results imply a deterioration in the skill selection of international migrant flows as poor households had below average skill levels. New international migrants were predominantly female and targeted the same destinations as prior migrants from the same household. This can be interpreted as evidence of strong kinship migration networks.  In terms of demographic composition, previous migrants with intimate partners left behind sorted selectively into retuning home, which led to an increase in couples’ cohabitation and resulted in an increase in fertility rates at the household level.

Gröger’s findings have important implications for both research and policy makers. The results show that domestic and foreign migration decisions are interrelated and jointly determine outcomes at origin. With respect to the effects of migration at destination, the evidence of sustained immigration despite economic crises abroad raises important questions about the impact on the host economy: where do low-skilled newcomers work? Which jobs are they doing? And how are native workers affected by it? Further research to answer these questions is critical given the current scenario of populism rising around the world.