Determinants of remittances by unskilled Pakistani migrant workers

Abstract

Foreign remittance is the second-largest source of foreign exchange in Pakistan which makes international migrant workers key players in the balance of payments equation of Pakistan. The Kingdom of Saudi Arabia (KSA) and the United Arab Emirates (UAE) are the most common destinations for unskilled migrant workers from Pakistan. With the increasing costs of migration and the sluggish economic performance of the Middle East in recent years before the pandemic, unskilled workers in the region are finding it increasingly difficult to maintain the flow of remittances to their families. This study contributes to the literature on remittances by: (1) identifying the determinants of sending remittances by unskilled Pakistan migrants in KSA and UAE; (2) finding the determinants of the wage differential between foreign jobs and local jobs of unskilled Pakistani workers; and (3) estimating the average time that a worker needs to potentially repay the costs of migration. Data for the empirical analysis came from the Knowledge Partnership on Migration and Development (KNOMAD) and the International Labor Organization (ILO) 2015 Migration and Recruitment Costs Survey in Pakistan. The findings suggest that experience and income are the most important determinants of remittances. However, the returns to education and experience are lower in KSA and UAE for unskilled labor as compared to Pakistan. Moreover, the economic costs of migration are high for these workers as it takes between five and nine years to recover the costs of migration. Unskilled migrants are important assets for Pakistan that will boost foreign reserves and reduce the balance of payment deficit. However, the opportunity cost of migration is high for educated and experienced workers and labor migration policies should consider both the costs and benefits of unskilled migration.