An economic analysis of remittance of unskilled migration on skilledヨunskilled wage inequality in labor host region

a r t i c l e i n f o JEL classification: J 31 O18 R23 Keywords: Unskilled migrants Remittance Skilled–unskilled wage inequality Labor host region The present paper establishes a two-sector general equilibrium model and conduct the comparative static approach to investigate the impact exerted by an increase in the remittance rate of the unskilled migrants on the skilled–unskilled wage inequality in the labor host region. We find that the unskilled migrants increase their remittance rate to the labor outsourcing regions that will decrease the skilled–unskilled wage inequality in the labor host region. The migrant remittance has captured lots of attention to the development economists during the last decades. World Bank (2001) estimates that the Indian immigrant remittance occupied 2.6% of GDP in 1999 and the Pakistan immigrant remittance took 1.8% of GDP in 1999. Rodriguez (1996) points out that 17% Philippine citizens received the immigrant remittance, which occupied 8% of Philippine's national income. Cox et al. (1998) show that 25% households in Peru received the immigrant remittance, which took 22% of Peru's national income. Furthermore, Cox and Ureta (2003) uses the data collected from Salvatore and shows that 14% rural people and 15% urban citizens in Salvatore received the overseas immigrant remittance in 1997. In addition to the economic impacts of the international migration on the labor-outsourcing regions or countries, the rural–urban migrant remittance in developing countries also exerts lots of economic impacts. For example, China's rural–urban migrants send or take home (or the labor outsourcing region) part of their income obtained from the labor-host region and the family members of the migrant workers in the labor-outsourcing region could benefit a lot from the rural migrant remittance. This is a common phenomenon among nearly 200 million rural–urban migrants in China. It has been estimated by the Chinese government that the rural–urban migrant remittance reached nearly 330 billion RMB (around 55 billion U.S. dollar) in 2010, which almost took 20%–50% of the income of the households who receive the remittance 1. Chen (2006) estimated that the total amount of rural migrant remittance could reach billions and the rural migrant remittance also alleviates the financial pressures in rural areas and becomes an important source of financing for education and medical expenses. From the above typical facts we know that the migrant remittance generates great impacts of on the labor-outsourcing regions or countries , which arouse the interests of both …