The Covid-19 Shock: Effects on the Migrant Labour Force and Remittances (Nov 12, 2020)

By:Dr. Zsoka Koczan and Dr. Alexander Plekhanov

While everyone faces a risk of infection, the economic shock associated with Covid-19 has been far from even, hitting the most vulnerable hardest. Small businesses, especially in the retail and services sectors, have borne the brunt of the crisis (Bircan, Koczan and Plekhanov 2020). Those working in these sectors, those in occupations not well suited for remote work, and those with more fragile employment contracts now face job losses and lower incomes.

In this article, we examine the likely effects of the pandemic on employment for immigrants and, in turn, on remittances. Although immigration to advanced economies generally receives more attention, it is important to note that emerging markets and developing economies host almost half of the world’s migrants.^[1] Motivated by this, we zoom in on a group of select emerging markets with significant migrant populations in south-eastern Europe and Russia (looking at the experiences of migrants predominantly from Central Asia and the Caucasus in Russia, from Bosnia and Herzegovina in Croatia, Montenegro and Serbia, and Albanians in Greece). In turn, we look at how these shocks are transmitted to the migrants’ home countries through remittance flows.

Many emerging markets have imposed strict virus containment measures by shutting their borders, closing schools, universities, restaurants and shops. Some countries have seen significant disruptions beyond the services sectors. Such containment measures, designed to help health systems cope with the virus, weigh both on domestic demand (as people stay at home and spend less) and domestic supply (as fewer people are working). The immediate effects of these disruptions are likely to be larger where large proportions of the workforce are self-employed, working in the informal sector or for small enterprises; whereas, only a small share of those employed on permanent contracts will likely bear the brunt of the disruptions. In the short term, the damage is also likely to be larger where governments lack the administrative capacity or the fiscal space to support affected businesses and individuals (EBRD 2020).

We find that migrants are more likely to be concentrated in occupations and sectors most affected by closures and are less likely than natives to be able to work from home. They are also less likely to have permanent contracts. This makes them especially vulnerable to job and income losses (Gagnon 2020, McAuliffe and Bauloz 2020, Yayboke 2020). In line with this, remittances have already fallen sharply to many economies.

Risks for Employment

Migrants are often concentrated in the occupations and sectors most affected by closures, such as retail services. In Russia, for instance, 14 percent of migrants work in retail, compared with 12 percent of natives.

Given their concentration in particular sectors, migrants are also generally less likely to be able to work from home than natives. Dingel and Neiman (2020) use surveys describing the typical experience of US workers in nearly 1,000 occupations to classify each occupation as able or unable to be done entirely from home. They then apply their occupational classification to 85 other countries to obtain estimates of the share of jobs that can be done from home in these economies. They find that in the US only around a third of jobs can be performed from home, and that this share is even lower in poorer countries. They also demonstrate that workers in occupations that can be performed at home typically earn more; they also tend to be higher skilled. Whereas most jobs in finance, corporate management, and professional and scientific services could plausibly be performed at home, very few jobs in agriculture, hotels and restaurants or retail could be performed remotely.

Figure 1 uses the case study example of Russia to illustrate the higher concentration of migrants in sectors where work cannot be done from home, for instance in agriculture or construction, and the lower concentration of migrants in sectors where a higher share of jobs can be done from home, such as finance and insurance or public administration.

Figure 1. Migrants’ employment in Russia and ability to work from home, by sector

Sources: Dingel and Neiman (2020), Life in Transition Survey 2016 and authors’ calculations.Notes: Share of jobs that can be done from home based on Dingel and Neiman’s (2020) estimates. The vertical axis shows the difference between migrants’ employment share in a given sector and natives’ employment share in that sector.

Migrants are also more likely to be working for small businesses, based on the results of a representative household survey (see Figure 2 and Marley 2020). Such small businesses are especially hard hit by domestic containment measures and are difficult to target using government support.

Figure 2. Share of those working for small firms, by country of birth, 2016 (percent)

Sources: Life in Transition Survey 2016 and authors’ calculations.Notes: Small firms are defined as those with less than 5 people.

Migrants are also less likely to have permanent contracts than natives, making them more vulnerable to job losses as firms are less likely to dismiss permanent workers than those on temporary contracts (see Figure 3 and Adams-Prassl et al. 2020).

Figure 3. Share of those employed on permanent written contracts, by country of birth, 2016 (percent)

Sources: Life in Transition Survey 2016 and authors’ calculations. Notes: Small firms are defined as those with less than 5 people.

Reductions in Remittances

As migrants face labour market shocks in the destination countries, such job losses and reductions in income translate into lower remittances being sent home.

In many countries, remittances add up to large fractions of the total GDP (see Figure 4). For example, remittances reach almost 30 percent of GDP in Central Asian economies, such as the Kyrgyz Republic and Tajikistan, with over three quarters of the remittances sourced from migrants working in Russia. Remittances total around 10 percent of GDP in Albania (with almost half of the remittances originating from migrants in Greece) and 10 percent in Bosnia and Herzegovina with almost half of the remittances sourced from migrants in Croatiaand Serbia).

Normally, remittances tend to be stable sources of income. They co-move less with GDP than foreign portfolio investment or foreign direct investment. They also tend to increase in the aftermath of natural disasters and political shocks, supporting incomes in remittance-receiving countries at times of crisis (Weiss Fagen and Bump 2005; World Bank 2006).

However, remittances could drop sharply if migrants face significant job and income losses in the destination countries—as they did during the Global Financial Crisis (Guermond and Datta 2020), amplifying the negative economic shocks faced by the remittance-receiving countries.

Remittances to many economies in Eastern Europe and the Caucasus and the Western Balkans have already dropped sharply as a result of border closures, disrupted transportation links and job losses, wage cuts and wage delays among migrants (Figure 4). In most countries, declines were sharpest during the spring when travel restrictions and domestic containment measures were strictest, showing drops similar to those seen during the Global Financial Crisis of 2008-09.

Figure 4. Remittances to select economies

Sources: Central Bank of Russia, national central banks, World Bank.Notes: Changes in US dollar terms, in Euros for the Western Balkans.

Many migrants also appear to have returned to their home countries, at least temporarily. According to the results of a representative household survey conducted by the EBRD and the ifo Institute in August 2020, around a fifth of households in Serbia and around a third of households in Ukraine reported receiving lower remittances because of the pandemic. Strikingly, similar shares of households said they had family members who returned from abroad (Figure 5). This share is much higher than seen during the Global Financial Crisis and suggests that remittances may fall further going forward, weighing on household disposable incomes and consumer demand.

Figure 5. Share of respondents saying they had a family member return from abroad due to the Covid-19 pandemic

Source: EBRD-ifo Survey.Notes: Excludes missing responses. This could include students, retirees etc., as well as migrant workers, and they may have only returned temporarily.

As migrants continue to face significant job and income losses in the destination countries, lower remittances and return migration could thus transmit the impact of the Covid-19 shock across countries, amplifying the effects of domestic containment measures.

Conclusion

Our latest findings thus suggest that migrants are more vulnerable to job and income losses than natives for three key reasons: they are more likely to be concentrated in occupations and sectors most affected by closures; they are less likely to be able to work from home; and they are less likely to have permanent contracts than natives. As migrants face labour market shocks in the destination countries, such job losses and reductions in income translate into lower remittances being sent home, exacerbating the negative economic shocks faced by the remittance-receiving countries.

[1] Of the world’s 243 million migrants in 2015 (accounting for around 3 percent of the world’s population), 114 million were in emerging markets and developing economies (based on data from the United Nations Population Division; country groups follow the International Monetary Fund’s classification).

Zsoka Koczan is the Associate Director at the European Bank for Reconstruction and Development (EBRD). Prior to joining the EBRD, Zsoka worked as an economist at the International Monetary Fund in the European and Research Departments. She holds a PhD in Economics from the University of Cambridge.

Alexander Plekhanov is Director for Transition Impact and Global Economics at the European Bank for Reconstruction and Development (EBRD). He edits EBRD’s annual economic report. Prior to 2007, he worked at the International Monetary Fund in Washington, DC. He holds a Ph.D. in Economics from the University of Cambridge.