Remittances and employment patterns in Ecuador

Migration is a relevant phenomenon in Ecuador. Since 1999, large waves of migration have been recorded due to the stringent economic conditions of the country. After the dollarization that took place at the beginning of 2000, remittances were the first source of external flows into the economy, contributing to rebuild what was left of Ecuador’s financial situation. This study attempts to analyze the effect of re-mittances at a micro level, specifically on labor supply of Ecuadorian workers. The identification strategy relies on instrumental variables together with TOBIT models (IVTOBIT). We follow this approach due to the possible endogeneity of remittances with respect to la-bor supply, and the limited nature of the main dependent variable, monthly hours worked. The findings suggest negative and significant effects of remittances on labor supply, especially in the formal sector for females and males, and in the informal sector for women, pro-viding evidence of an income effect. Some positive effects are found among women in rural areas within non–paid activities, supporting the argument that remittances might alleviate budget constraints and, therefore, allow households members to allocate more time at home.