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Remittances, entrepreneurship, and employment dynamics over the business cycle

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  • Finkelstein Shapiro, Alan
  • Mandelman, Federico S.

Abstract

We incorporate remittances and micro-entrepreneurship (self-employment) into a small open economy business cycle model with capital and labor market frictions. Countercyclical remittances moderate the decline of households' consumption during recessions. These remittances also are used to finance the start-up costs of microenterprises that bolster households' income during economic downturns. We show that the positive income effect from countercyclical remittances also leads to a decrease in salaried labor supply, which generates offsetting upward pressure on wages during recessions and adversely affects the recovery of the economy. Consistent with the microeconomic evidence, the behavior of remittances decisively affects labor force participation and the composition of employment between non-salaried and salaried employment over the business cycle. The model delivers labor market and aggregate cyclical dynamics that are consistent with the Mexican data, including a highly volatile and countercyclical unemployment rate.

Suggested Citation

  • Finkelstein Shapiro, Alan & Mandelman, Federico S., 2016. "Remittances, entrepreneurship, and employment dynamics over the business cycle," Journal of International Economics, Elsevier, vol. 103(C), pages 184-199.
  • Handle: RePEc:eee:inecon:v:103:y:2016:i:c:p:184-199
    DOI: 10.1016/j.jinteco.2016.10.001
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    Cited by:

    1. Epstein, Brendan & Finkelstein Shapiro, Alan, 2018. "Financial Development, Unemployment Volatility, and Sectoral Dynamics," MPRA Paper 88693, University Library of Munich, Germany.
    2. repec:eee:deveco:v:133:y:2018:i:c:p:66-83 is not listed on IDEAS
    3. repec:eee:inecon:v:111:y:2018:i:c:p:214-232 is not listed on IDEAS
    4. repec:eee:deveco:v:133:y:2018:i:c:p:346-374 is not listed on IDEAS
    5. repec:eee:jimfin:v:78:y:2017:i:c:p:44-63 is not listed on IDEAS
    6. repec:bla:intfin:v:20:y:2017:i:1:p:100-112 is not listed on IDEAS

    More about this item

    Keywords

    Business cycles; Search and matching frictions; Unemployment; Self-employment; Microenterprise development; Remittances;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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