Remittances and Labor Supply: The Case of Kosovo

Jeta Rudi, University of Minnesota

This study investigates the impact of remittances on the intensity of job search for unemployed respondents in receiving households in Kosovo. The novelty of this study, is that it considers two outcomes, reservation wage and registration at the local unemployment center, to proxy for the intensity of job search. Using household-level data from Kosovo and instrumental variables approach, I show that remittances have a negative but small effect on labor supply. The results indicate that the elasticity of monthly reservation wage with respect to monthly remittances for the unemployed, is approximately 0.03 – 0.19. The results also support the hypothesis that an increase in remittances decreases the probability of registering with the local unemployment center. The study provides policy recommendations in light of Kosovo’s current economic conditions and its aspirations to join the European Union.