Do Government Programs “Crowd In” Remittances? J. Edward Taylor Department of Agricultural and Resource Economics University of California Davis, CA 95616 [email protected]Katherine M. Donato Louisiana State University Shawn Malia Kanaiaupuni University of Wisconsin October 2001 This study is an outgrowth of the project "The Developmental Role of Remittances in U.S. Latino Communities and in Latin American and Caribbean Countries," conducted by the Tomas Rivera Policy Institute (TRPI) and the Inter-American Dialogue (IAD). Taylor is a member of the Giannini Foundation of Agricultural Economics.
Transcript
Do Government Programs “Crowd In” Remittances?
J. Edward Taylor Department of Agricultural and Resource Economics
This study is an outgrowth of the project "The Developmental Role of Remittances in U.S. Latino Communities and in Latin American and Caribbean Countries," conducted by the Tomas Rivera Policy Institute (TRPI) and the Inter-American Dialogue (IAD). Taylor is a member of the Giannini Foundation of Agricultural Economics.
Do Government Programs “Crowd In” Remittances?
Abstract
Many immigrant households receive government transfers, and immigrant households also send substantial amounts of remittances abroad. This study tests the hypothesis that public transfers to U.S. immigrant households “crowd in” remittances. Economic theory is inconclusive about how public transfers influence remittances. We find no evidence that means-tested income transfers increase remittances to Mexico from a sample of households in two border communities in California and Texas. However, there is a positive association between non-means-tested transfers and remittances. Successful economic integration of immigrant households, reflected in nontransfer income, reduces remittances, while the presence of respondents’ children abroad increases them.
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Do Government Programs “Crowd In” Remittances?
Do public transfers “crowd in” remittances? This research attempts to test the hypothesis that government transfers to immigrant households in the United States increase income remittances to households abroad—a variant of “crowding out” theory. Crowding out theory argues that private transfers (e.g., from parents to poor grown children) decrease when government transfers (like welfare payments to the poor grown children) rise. Because of this, a $1 increase in public transfers raises the recipient-household’s income by less than $1, and it indirectly benefits the private transfer-sending household (in this example, the parents of the children who receive welfare). The present research is motivated by two observations: first, established immigrant households often are recipients of means-tested and non means-tested government transfers; and second, immigrant households send substantial amounts of remittances abroad, especially to Mexico.1 These two observations raise the possibility that government transfers that supplement immigrant-household incomes increase or “crowd in” remittances. That is, the more U.S. immigrant households receive in public transfers, the more income they remit. The ramifications of this crowding-in hypothesis potentially are far-reaching. For example:
• If there is a positive link between public transfers and remittances, federal and
state government transfers effectively subsidize households in Mexico and other countries. In the case of means-tested programs, remittances would mute the impact of transfers on U.S. poverty, while helping to reduce poverty abroad.
• If immigrant households lose income transfers due to 1996 welfare-reform
legislation, then remittances could decrease and poverty abroad could increase, possibly intensifying migration pressures.2 In other words, U.S. immigrant households could compensate for lost public income transfers by reducing their private income transfers abroad.
• On the other hand, if remittances are inelastic with respect to government
transfers (that is, they do not decrease when government transfers decrease), 1996 welfare reforms could push U.S. immigrant households deeper into poverty. An inelastic remittance response would mean that U.S. immigrant households would not be able or willing to compensate for lost public transfers by reducing their private transfers abroad.
• Remittances may alter the Keynsian-multiplier effects of government transfer
programs. The U.S. economy benefits as migrants work and spend their income in x1 According to International Monetary Fund (IMF, 1998) estimates, total remittances (worker remittances plus compensation of employees working abroad) to Mexico were $6.5 billion in 1998, second only to India ($9.5 billion), although more than six times greater than India in per-capita terms. 2 The 1996 Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) signaled, in Fix and Zimmermann’s (1997) words, “a striking departure from an inclusionary social welfare policy that made legal immigrants eligible for public benefits on largely the same terms as citizens, to one that systematically discriminates against most non-citizens.” Restrictions on immigrants’ access to welfare under PRWORA has been scaled back since the law’s passage, however.
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this country. Remittances are a leakage, lowering consumption in the United States. If these leakages are important, economic measures may overstate the multiplier effects of some government programs.
No research to our knowledge has explored theoretically or empirically the link between
U.S. government transfers and remittances by the transfer-receiving households. The present study attempts a first step in this direction. It examines the theoretical basis for the remittance “crowding in” hypothesis, then estimates remittance effects of means-tested and non-means-tested government transfers, controlling for total income.3 It also explores the influence of household characteristics, including the socio-demographic make-up of U.S.-immigrant households, on remittances. The analysis uses unique data from a survey carried out in two border communities in California and Texas.
Economic theory is generally inconclusive about the impacts of government transfers on
remittances. While standard consumer theory would predict that remittances, if a “normal” good, increase when income (including transfer income) increases, other theories on public-private transfers predict exactly the opposite. Interactions between government programs and remittances are likely to shaped by characteristics of transfers (i.e., means-tested versus non-means-tested) as well as by characteristics of the immigrant households that receive these transfers.
1. Theoretical Considerations
The analytical foundation for this research integrates economic theories of remittances with
theories of public-private transfer interactions, in the context of the “transnational households” characteristic of many U.S. immigrant groups.
Two Key Questions
How public transfers affect remittance behavior turns on two key questions. First, are remittances, in economic parlance, a “normal” good—that is, other things being the same, do they increase when household income increases? Second, do income sources matter—that is, does public-transfer income affect remittances in the same way as other income sources? The answers to these two questions are complex and potentially beyond the realm of standard economic models of consumer behavior that ignore income sources.
3 “Means-tested benefit programs” has become a term of art in immigration law referring only to TANF, SSI, Medicaid, and CHIP programs from which post-1996 immigrants are banned under the PRWORA. We use this term more broadly, to include WIC, Food Stamps, and AFDC, as well. “Non-means-tested transfers” include unemployment insurance and social security.
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Theories of Remittances Research on migrant remittances and their impacts in migrant-sending (remittance-
receiving) households and regions is abundant (for a review, see Massey, et al., 1998 or Taylor and Martin, 2001). However, research on why migrants remit and what variables determine the size of remittances has been limited both by a lack of theoretical understanding of the remittance process and by a paucity of data on remittances from the remittance-sending end.
Standard consumer theory predicts that increases in income, whether from public transfers
or other sources, increase households’ demand for “normal” goods, while decreasing their demand for “inferior” goods. Remittances, a private income transfer to another household, represent expenditures not entirely unlike expenditures on other goods. Like expenditures on other goods, the act of remitting brings utility or satisfaction to the remitting household—otherwise we would not observe remittances. The manner in which remittances create utility for the household, however, is less tangible than for other types of expenditures. Different theories about how remittances enter into household welfare or “utility” functions lead to different predictions about how changes in income, including public transfers, affect remittances.
The most promising research on motivations to remit has been cast in the framework of the
“new economics of labor migration,” or NELM, pioneered by Stark (e.g., see Stark, 1991 and Stark and Bloom, 1985). Families in migrant-sending areas, especially rural communities, engage in migration by sending one or more members off as migrants (frequently, sons and daughters of the household head), who subsequently share part of their earnings with the rural household, through remittances. While some family members migrate, others remain at the place of origin. The NELM theory argues that imperfections in rural credit and risk markets (e.g., farmers’ inability to obtain credit, insure against income loss, etc.) create incentives to participate in migration by sending family members to work in the city or abroad. According to this view, migrants play the role of financial intermediaries, substituting for the missing rural bank or insurance institution. Once they are established at their destinations, migrants provide the family members at the origin with needed capital, through remittances, and with income insurance, through remittances or simply the promise to remit should the origin household suffer an adverse income shock.
This perspective begs the question why, once they have successfully migrated, individuals
remit. Support of family members is a deeply engrained cultural practice in Mexico and in Mexican migrant households in the United States. Anthropological studies suggest that the commitment of support is especially strong when immigrant parents in the United States leave young children behind to be cared for (e.g., by the children’s grandparents) in Mexico (e.g., Fletcher, 1998).
Traditional classical or neoclassical models of migration behavior (e.g., Todaro, 1969) do not
explain why migrants share their earnings with their place of origin. However, remittances are a cornerstone of the NELM, representing one of the most important mechanisms through which determinants and consequences of migration are linked. NELM researchers argue that migration entails an implicit contract between migrants and their households of origin. The migrant-sending household often shoulders the cost of migration, it may support the migrant until s/he is established at the migrant destination, and it serves as a refuge to which the migrant may return in the event of
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illness, unemployment, or other misfortunes. It also may manage a migrant’s investments, e.g., in livestock, a small business, or housing for retirement, and it may have inheritable assets of interest to the migrant. The migrant, in turn, once established in the distant labor market, provides the household with capital and income insurance through remittances (or, in the case of insurance, a promise to remit in the event of an adverse income shock). Altruism between the migrant and family at the origin reinforces this implicit contract.
One possible explanation for remittances is that migrant households’ welfare depends on the
welfare of individuals in the migrant-origin household—that is, migrant and origin households’ utility functions overlap. A model of pure altruism would predict that, as migrant incomes increase, part of the incremental income is passed on to the origin household through remittances. That is, remittances help to equalize the marginal welfare gains from the income increase between households. If the income increase results from a public transfer, then part of the transfer would be channeled to the origin household, through remittances. An overlapping utility function is used by Funkhouser (1995) in his study of migrant remittances in El Salvador and Nicaragua. A model of reciprocal altruism between generations underlies Tcha’s (1996) novel and provocative work on rural-to-urban migration in Korea and the United States.
Nevertheless, a positive effect of income transfers on remittances is not predicted by all
models, including models linked to the NELM. For example, in a pure insurance model in which the migrant plays the role of insurer for the origin household (but not vice-versa), there is little reason to expect an increase in migrant income to be passed on to the origin household through remittances. Indeed, in competitive formal insurance markets, insurance payments depend entirely on income shocks suffered by the insured, not on the income of the insurer.4
Remittance effects of income changes are more complicated in other varieties of collective
models of household behavior, including game theoretic models, which are also consistent with the NELM (e.g., Bourguignon and Chiappori, 1992). In a Nash-bargained (e.g., McElroy and Horney, 1981) household, individuals compare their welfare as members and non-members of the household. If individuals perceive that their level of welfare living outside the household would be high, they may have an incentive to leave the household, unless other household members create incentives for them to stay, say, by giving them more control over household resources or decisions. In general, the greater the threat that the individual will leave the household and the more the remaining members’ welfare depends on the individual staying, the more influence the individual can exert over resource allocations within the household. One striking prediction of game theoretic models is that as a migrant’s income increases, his or her incentives to remit may decrease. Conversely, as the remittance-receiving household’s income rises, its receipts of remittances may also rise—because it may behoove the migrant to increase his or her stake in the origin household for inheritance or other motives. An extreme case might be a wealthy migrant who does not “need” the rest of the household to fall back on in times of need. In this case, remittances from the wealthy 4 Inter-household income transfers, including credit, appear to constitute an important informal insurance mechanism for rural households in developing-country settings (e.g., see Townsend, 1994; Rosenzweig, 1988; Rosenzweig and Stark, 1985; Udry, 1994), although it is difficult to disentangle insurance behavior from behavior predicted by the permanent income hypothesis (Alderman and Paxson, 1994). There is some evidence that transfers facilitate risk sharing in urban households in developing countries (Cox and Jimenez, 1998) as well as in the United States (e.g., Mace, 1994; Nelson, 1998; Cochrane, 1991), although it appears that private transfers are better at insuring against some risks (e.g., unemployment) than others (e.g., long-term illness); see Cochrane, 1991.
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migrant to the household of origin are likely to depend entirely on altruism, not on risk-sharing or some other kind of mutual economic dependence. A game theoretic perspective underlies Lucas and Stark's (1985) analyses of remittance behavior in Botswana, and a Nash-bargained household model appears explicitly in Hoddinott’s (1994) study of rural out-migration in western Kenya. Cox, Eser and Jimenez (1998) find, consistent with a game-theoretic or “exchange” model, that transfer amounts received by Peruvian households increased, rather than decreased, with respect to recipients’ pre-transfer income.
Consider a “transnational” Nash-bargained household, consisting of the U.S. immigrant
household and place-of-origin family members. As in the standard Nash-bargained model, welfare depends on the net utility gains deriving from membership in the transnational household for migrants and origin-household members. Income remittances represent an economic link binding migrants and origin family members within the transnational household. Migrants sacrifice income, presumably in exchange for the benefits that membership in the transnational household affords them. Individuals' welfare as nonmembers of the transnational household--that is, the utility they would enjoy by severing their ties with family members at the origin (in the case of the migrants) or in the U.S. (in the case of the origin family members)--represents the threat point in this game. If migrants leave young children behind, their benefits from keeping close ties with the origin household and from remitting (to support their children) are likely to be considerable.
The less promising that migrants perceive their future prospects outside the transnational
household, according to this perspective, the smaller their threat point, the less likely they will sever ties with the origin family members, and the more income they will remit, other things (including migrant earnings) being equal. While a model of pure altruism would predict a positive association between migrant earnings and remittances, a game-theoretic model might predict just the opposite. In a Nash-bargained world, increased public transfers in the United States increase the migrants’ threat point, diminishing their motivation to remit.
One benefit from membership in a transnational household may be income insurance for
migrants: the origin family members may provide migrants with support (i.e., a refuge) in the event of unemployment, illness, or other misfortunes. The availability of public transfers in the United States, including “safety-net” means-tested transfers and non-means-tested transfers like unemployment insurance, diminish the potential insurance role of family at the origin.5
In short, how one conceptualizes remittance behavior is critical to formulating hypotheses
about how public income transfers affect remittances. So is the type of income transfer. In a pure altruism model, remittances should increase any time the income of the potential remitter increases, unless the potential remitter’s income is very low, e.g., below subsistence.6 Means-based transfers are targeted at poor individuals and households whose children are present; thus, they may or may not increase remittances, even in an altruism model. Immigrant households whose children are all in the United States may have little incentive, economic or cultural, to send remittances. In
5 None of these economic models fully captures the cultural reasons why migrants may remain committed to their households of origin that may be reflected in remittances. 6 For a very poor U.S. household, desired remittances might be negative—implying reverse (origin-to-migrant) remittances. However, family members at the origin may not be expected, willing, or able to send income “north.”
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Mexican villages, a frequent (and, it seems, culturally legitimate) reason for grown sons or daughters not to remit is that they have a family to support in the United States.
Non-means-based transfers would be expected to encourage remittances in an altruism model.
However, in a game-theoretic remittance model, an increase in the U.S. immigrant household’s income could increase its “threat point” and discourage remittances to Mexico. For example, access to public-transfer income in the United States, if it is perceived as being secure, might lessen the need to remit as a means of maintaining a social or family safety net, or a future livelihood, in Mexico.
More fundamentally, perhaps, unemployment insurance and social security are social
insurance programs that are premised upon work of some duration in the formal economy, and hence may be metrics of economic integration. By contrast, transfers from the means-tested social welfare or safety net programs may be metrics of failed integration. People who receive social insurance payments are likely to be able to afford to remit; those who receive welfare may be less so.7
No research to our knowledge considers the potential interactions between public and private
transfers when modeling remittances. Theory of Public and Private Transfers There is a major body of research on the role of government transfers in supporting
children, smoothing household income, and shaping the distribution of income in the United States. A few studies examine intergenerational (private) transfers—that is, parents’ provision of income support to their adult children and their children. Much of this work is inspired by seminal research by Becker (1974) and Barro (1974). Very little research has explored empirically the interaction between public and private income transfers, however. An exception for the United States is a study by Rosenzweig and Wolpin (1994), which finds evidence that public transfers “crowd out” private ones. In developing countries, where public transfers tend to be small but private transfers may be substantial, there is some evidence that social security income and other forms of government support displace private transfers (e.g.,see Cox and Jimenez’ study of income transfers in the Philippines and Jensen’s (1998) superb study from South Africa, discussed in some detail below).
A number of studies in various contexts suggest that characteristics of income sources,
including how secure or insecure they are, influence household expenditures. Zimmerman and Carter’s (1999) findings suggest that government programs that reduce households’ income risk increase households’ investments in productive activities. Such programs could include government transfers, provided that households view these transfers as being secure (e.g., social security). In a transnational household context, some members of U.S. immigrant households may remit as a means of investing abroad—either in directly productive assets (e.g., livestock) or in “social” or “family” assets, which may be critical in the event the migrant returns to the place of origin, including upon retirement. Security of income sources, including government 7 I am indebted to Michael Fix for this insight.
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transfers, may influence these remittances in ways similar to the ones postulated by those researchers.
South Africa has served as a laboratory for research on public-private transfer interactions,
because of huge inflows of both government transfer payments (primarily old age pensions) and private remittances into rural areas in recent years. Both result from the peculiar structure of apartheid, which left dependent youth and the elderly behind in rural areas, dependent upon income from members who worked away from home as migrants in mines, factories and plantations. Jensen (1999) finds evidence that public transfers “crowd out” remittances or private transfers to the recipient households. Thus, part of the benefit of public transfers accrues not to the targeted households, but rather, to other households via changes in remittances. Other things being equal, a one rand increase in public transfer income is associated with a .25 to .40 rand reduction in private transfers to the households receiving the public transfer. Unlike in the present study, the recipients of the public transfers in Jensen’s analysis are the remittance-receiving, not the remittance-sending, households—they are households containing mostly very young and elderly people left behind by working-age migrants. Public transfer income, including pensions and social security, is minimal in rural Mexico, where most recipients of U.S.-to-Mexico remittances are situated. Nevertheless, Jensen’s analysis suggests that there is a significant empirical link between public transfers and remittances. Of the existing studies on crowding out, it is most directly related to the present research. If a similar pattern holds for U.S. immigrant households, one would expect to see public transfers “crowd in” remittances—that is, through remittances, public transfers would subsidize households in Mexico.
Rosenzweig and Wolpin (1994) examine parental and public transfers to young women and
their children in the United States. They do not focus on immigrant households. However, they find evidence that government support via welfare programs like AFDC displaces parental support in the form of direct income transfers and shared housing. That is, welfare programs aimed at poor women and their children partly subsidize the parental generation. These findings suggest that the true budget constraint facing the relevant agents (in this case, young adult women) includes income of the parents or other providers of income support.
While uncovering evidence of substitution between public and private transfers, existing
studies do not explore the impact of welfare and other government transfer programs on remittances from U.S. immigrant households. However, they raise the possibility that there is substitutability between at least some types of public and private transfers, including remittances.
Transnational Households Perhaps the main argument against a link between public transfers and remittances is that
(a) new immigrants are unlikely to qualify for most forms of public assistance, and (b) these are precisely the individuals who are most likely to have strong ties with households at the origin and, at a given level of income, are most likely to remit. This observation underlines the importance of controlling for years since immigration when estimating the impacts of government transfers and other income sources on remittances by individuals. However, it overlooks the fact that many immigrants do not live in nuclear-family households, but rather, in
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multi-generational households representing several different cohorts of immigrants, frequently of heterogeneous immigration statuses. For example, it is not uncommon to find a household containing a legal resident, with a son or daughter who is an unauthorized immigrant or who has been legalized under the amnesty or SAW provisions of the 1986 Immigration Reform and Control Act (IRCA), and with unauthorized and/or U.S. citizen grandchildren. As we shall see below, many immigrant households have multiple sources of public-transfer income. The same household may contain individuals with access to means- and non-means-tested public transfers, including social security; WIC, AFDC, or welfare; and unemployment insurance. Through remittances, many maintain strong ties to family members in Mexico; others do not. Remittances may be the outcome of a complex interplay of income sources and individual interests within these households, shaped also by influences from family members in Mexico.
Any or all public transfers may influence remittances from the U.S. household to Mexico,
and they may do so in different ways. Research in other contexts suggests that secure income transfers (e.g., social security, which is not vulnerable to changes in welfare policy) may have different effects on household expenditures, including investments, than do less secure income sources. If members of immigrant households with heterogeneous income sources pool their income or else provide insurance for one another, then, for example, social security income received one household member could influence another household member’s decision to send remittances to Mexico. If the recipient of social security is not interested in remitting, the use of social security income to subsidize remittances would depend on the influence within the U.S. household of those favoring remittances. For example, an individual might play the role of caregiver for an elderly parent on social security while wishing to maintain ties, through remittances, with family members in Mexico. Although the elderly parent is assured of social security income until death, the children may not be. For them, the benefits of maintaining a “safety net” in Mexico may justify the loss of income in the short term, through remittances. Moreover, while the elderly parent’s children are present in the U.S., the grandchildren may not be. Altruism between the elderly U.S. household member and the son or daughter might reinforce the incentives to remit. The size and even the sign of the effect of non-means-tested income sources on remittances may be quite different from those of means-tested income sources like AFDC or non-transfer income, due to characteristics both of the income sources and of the individuals receiving them.
In short, economic theory is generally inclusive about the direction of likely effects of
government transfers on remittances. An empirical approach is required in order to test and quantify these effects, controlling for total income, household characteristics, and types of public transfers.
2. Econometric Model We follow the tradition of past research of using a linear specification to estimate the
impact of government transfers, earnings, and other household variables on private transfers—in this case, remittances. The basic econometric model is:
iiiiii ZNMTMTYR εβββββ +++++= 43210 (1)
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Where the variables are defined as follows: Ri Monthly remittances Yi Log monthly total household income (excluding transfers) MTi Dummy for receipt of means-tested public transfer (MT = 1 if household received
WIC, AFDC, food stamps, SSI, welfare, or medicaid; 0 otherwise) NMTi Dummy for receipt of non-means-tested public transfer (NMT = 1 if household
received Social Security or Unemployment Insurance; 0 otherwise) Zi Vector of household socio-demographic variables hypothesized to influence
remittances (given income), including household size and type (female headed versus other); years since immigration, and number of children living abroad.
εi A stochastic error term, assumed to be approximately normally distributed with
mean zero and constant variance σ2. The coefficients β1, β2, and β3 represent the effects of household total monthly income (net
of pubic transfers), means-tested public transfers, and non-means-tested public transfers, respectively, on total monthly remittances. β4 represents the influence of other household variables on remittances.
The model is complicated by the fact that earnings are endogenous and we only observe the
level of remittances, Ri*, if Ri* ≠ 0. The household remits a positive amount if its desired remittances, Ri*, are positive; in this case, desired remittances are “explained” by the right-hand-side variables in equation (1). Although desired remittances may be less then zero (i.e., for a U.S. household wishing to receive remittances from abroad), in no case did we observe reverse (Mexico-to-U.S.) remittance flows in our survey data. In other words, in practice, observed remittances are censored at zero. The true model, then, is:
iii
iiiiiii
uXYotherwise
ZNMTMTYRR
++=
+++++=
=
'0
10
43210*
αα
εβββββ (2)
where the vector Xi contains the usual Mincer earnings-equation variables (years of completed schooling, experience, experience-squared) and years since immigration for the male household head and female respondent, respectively, as well as other influences on income, including non-transfer unearned income receipts; , u and ),0(~ 2
εσε Ni ),0(~ 2ui N σ ),cov( ii uε may be
nonzero. The income regression and a tobit for remittances were estimated simultaneously using full-information maximum likelihood in LIMDEP.
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3. Data Data to estimate the model the model depicted by equation system (2) are from the Health
Migration Survey, carried out by Donato and Kanaiaupuni in two immigrant communities, one inside the city limits of Houston and the other inside a small city in San Diego county (see Kanaiaupuni and Donato, 1999). These communities were selected because they were the primary destinations for migrants in the Mexican Migration Project survey of 1996 (see http://lexis.pop.upenn.edu/mexmig).
In each city, surveyers began by defining neighborhoods (using census tract and
block information and walk-throughs) containing high concentrations of foreign-born persons and persons of Mexican national origin. Once the definitions and boundaries for each neighborhood were established, a list of all household addresses in the neighborhood was obtained from the United States Census Bureau, and the sample households were randomly chosen from that list.
Because the households in this analysis were chosen randomly, they are representative of households in communities that have attributes similar to those in the surveyed areas. The San Diego neighborhood contains a relatively young population, with many young children, few home owners, and many recently arrived Mexican migrants. The Houston neighborhood is more established, older, with fewer recent arrivals of Mexicans, a higher instance of home ownership, and a larger share of households in which both parents are present. Both areas have high rates of poverty. The survey did not exclude households containing only U.S.-born persons. However, the surveyed neighborhoods are predominantly immigrant. In 85 percent of the surveyed households, either the male head or female respondent was foreign-born. The male head was foreign born in 82 percent of the households, and the female respondent was foreign born in 76 percent of the households. Our econometric analysis utilizes cases in which either the female respondent or male head was foreign-born.
Table 1 summarizes sample households’ receipt of government transfers. The first column reports the percentage of households receiving transfers from each of the major means-tested (WIC, Foodstamps, AFDC, SSI, Welfare) and non-means-tested (Unemployment Insurance, Social Security) programs. In many cases, households participate in multiple means- and non-means-tested programs. Of the 253 households for which we have complete transfer data, just over half (51 percent) received some type of means-tested public transfer; of those, 20 percent also received some form of non-means-tested transfer. Twenty-two percent of all households received non-means-tested transfers; of these, 47 percent also received some kind of means-tested transfer.
Table 2 presents summary statistics on household socio-demographic characteristics and
remittances for the 156 households on which complete data were available on all variables included in the econometric analysis. Thirteen percent of households in the sample are female headed. The average household size is 5.5 persons. Average schooling of female respondents and male heads is less than seven years, average work experience is 20 to 25 years, and average years since immigration is 14.5 and 9.8 years for the male head and female respondent, respectively. Average monthly remittances in the household sample are small: US$55.45 per month ($665 per year). However, in the 23 percent of households that remitted, average
remittances were $2,705 annually. This is close to the average in the Mexican Migration Project data ($2,886; DeSipio, 2000). By comparison, the INS Legalized Population Survey (LPS), which covers only immigrant households with members legalized under the 1996 Immigration Reform and Control Act, found that, in 1987, 64 percent of households remitted, and remittances, averaged across all households, were $1,148 annually (the median was $500). Between 1988 and 1991, the percentage of LPS households remitting dropped to 52, and average remittances fell to $821 (INS, 1996). Thus, the average remitted is slightly lower in our sample, which includes “old” as well as “new” immigrant households, than in the 1996 LPS, but the average from the LPS appears to be approaching our mean over time. Average remittances per remitting household are not available from the LPS.
4. Econometric Findings
Our econometric findings appear in Table 3. Household participation in means-tested
programs does not significantly influence remittances. In contrast, their participation in non-means-tested programs (social security, unemployment insurance) significantly increases remittances (significant at the .001 level). The elasticity of remittances with respect to total (non-transfer) income is negative and significant; successful economic integration in the United States, reflected in current income, appears to reduce households’ participation in economies abroad, via remittances. Controlling for income and public transfers, there is only weak evidence that time in the United States significantly affects remittances. Only the quadratic years-since-immigration term is significant below the .10 level for the male head, but neither the linear nor the quadratic years-since-immigration term is significant for the female respondent. There is a positive association between remittances and the number of respondents’ children living abroad, reflecting immigrant parents’ commitment to support their children regardless of whether they are in the United States or Mexico.
The results of the income-regression estimation, presented in the bottom panel of Table 3,
conform nicely to the Mincer earnings model. Schooling of both the female respondent and the male head significantly increases earnings. (The estimated economic returns to schooling are high—11 percent and 16 percent, respectively—at the low average schooling levels observed in this sample.) Work experience increases earnings but at a decreasing rate. The estimated returns to human capital are significantly larger for male heads than for female respondents. The human capital variables, by virtue of their positive correlation with economic success, indirectly reduce remittances through income. Other things being equal, years since immigration do not significantly affect earnings in the border economies from which this sample was drawn.8 Unearned income has a less-than-unitary effect on total nontransfer income, suggesting some “crowding out” between earned and unearned income.
In short, our econometric findings indicate that some of the benefits from non-means-tested
income are transferred abroad, through remittances. Interestingly, this finding mirrors that of Jensen’s study in South Africa. Jensen found that households’ remittance receipts significantly decrease when households receive government-transfer income (mostly pensions). We found that households’ remittance expenditures significantly increase when they receive non-needs- 8 We experimented with a quadratic form but neither the linear nor quadratic terms were significant in the income regression.
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tested income. Jensen found that households’ remittance receipts either are not significantly affected by, or else are relatively inelastic with respect to, their own non-transfer income. Our finding of a negative association between remittance expenditures and earnings suggests that increasing economic integration of immigrants in the United States diminishes the incentive to maintain a stake in household economies abroad, through remittances. Both Jensen and the present study find evidence that private transfers do not respond in the same way to all sources of income—defying the assumption of standard consumer theory that household income sources are fungible.
5. Conclusions Our findings from a sample of Mexican immigrant households do not support the argument
that migrant remittances transfer the benefits of welfare and other means-tested income programs abroad. Welfare and other means-tested government programs do not appear to subsidize households in Mexico. Nevertheless, it appears that, on average, immigrant families share their entitlements, including social security income, with households in Mexico. These findings are consistent with an altruism model of remittances. The poorest households, which are the ones most likely to receive means-tested income transfers, are also most likely to be at or near the subsistence minimum; income insecurity in these households may discourage sending income abroad. By contrast, households receiving social security and other non-means-tested entitlements are somewhat less at-risk; their average earnings in this sample were $1,580, compared with $1,230 for other households. Our findings are also consistent with risk and game-theoretic motives for remitting: Access to means-tested transfers, like economic success in U.S. labor markets, may reduce poor households’ reliance on social and family insurance in Mexico, discouraging remittances as an investment in “social capital” there. That is, public assistance in the United States may substitute for social and family support networks in Mexico. Finally, many means-tested benefits depend on having children present in the United States; low remittances might be justified, both economically and culturally, by poor parents’ commitment to support their children in the U.S. When respondents have children living abroad, their remittances increase.
Receipt of non-means-tested benefits is probably a good indication that the individual receiving these benefits (1) has been in the United States for some time and worked to qualify for benefits, and (2) has legal residence status. This might lead one to be surprised by our finding that non-needs-tested transfers significantly increase remittances. However, as noted earlier, the recipient’s residence status and immigration experience do not necessarily reflect those of other household members. This is especially likely in the generationally and demographically complex immigrant households that make up our data set and that are reflected in the composition of transfer income; i.e., more than 50 percent of U.S. immigrant households receiving nonmeans tested transfers also received some sort of means-tested transfer. The finding of a positive impact of government transfers on remittances is consistent with interdependent utility models, including the game theoretic models described earlier. Moreover, controlling for income, remittances appear to be remarkably stable as experience in the United States increases. This may indicate that motivations to remit do not diminish as sharply as one might expect over time. Alternatively, it may reflect an on-going infusion of U.S. immigrant
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households with new immigrants who have a high propensity to remit and who are able to influence the allocation of household income to remittances.
15
Table 1. Diversity of Public Assistance in Immigrant Households, Houston and San Diego Samples
Percentage That Also Received... Households Receiving (%)
Means-Tested
WIC Food-stamps
AFDC SSI Welfare Non-Means-Tested
Unemploy-ment
Social Security
Means-Tested (51%) 100 67 23 11 6 25 20 14 8
WIC (34%) 100 100 12 8 2 12 9 8 1
Foodstamps (14%) 100 29 100 14 6 34 34 26 14
AFDC (6%) 100 50 36 100 0 36 7 0 7
SSI (3%) 100 25 25 0 100 50 50 13 38
Welfare (13%) 100 31 38 16 13 100 41 25 22
Non-Means-Tested (22%) 47 15 22 2 7 24 100 60 51
Unemployment (13%) 55 21 27 0 3 24 100 100 18
Social Security (11%) 36 4 18 4 11 25 100 21 100
Source: Compiled from Health Migration Survey Data
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Table 2. Descriptive Statistics
Variable Definition Mean Standard Deviation
INCOME Total Household Monthly Income 1388.12 693.91 YSI1 Years Since Immigration, Household Head 14.54 10.94 EXP1 Experience of Household Head 24.70 12.92 EDUC1 Years of Completed Schooling, Household Head 6.78 4.13 YSI2 Years Since Immigration, Respondent 9.79 9.02 EXP2 Experience of Respondent 20.03 11.94 EDUC2 Years of Completed Schooling, Respondent 6.31 3.97 SD 1 for San Diego Sample, 0 for Houston Sample 0.79 0.41 UNEARN Household Unearned Income 143.44 349.80 DREM 1 if Household Remitted, 0 Otherwise 0.22 0.41 DMEANS 1if Household Received Means-Tested Transfer, 0 Otherwise 0.56 0.50 DNOMEANS 1if Household Received Non-means-Tested Transfer, 0 Otherwise 0.13 0.34 MEMBERS Household Size 5.53 2.27 DFEM Dummy Variable = 1 if Female-Headed Household, 0 Otherwise 0.13 0.34 KIDSINMX Number of Respondent's Children Living in Mexico 0.52 0.81 REMITS Monthly Remittances 55.45 170.90 Number of Observations = 156
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