The Nexus Between The Employment Rate In The U.S. & Global Remittances

The coronavirus pandemic has been devastating for the global economy on top of being a major public healthcare crisis for countries around the world.

The global unemployment rate due to this pandemic has been unprecedented. According to the International Labor Organization, nearly 400 million full-time jobs were lost in the second quarter of this year.

The United States (U.S.) unemployment rate soared to a record high of 14.7% in April with millions of Americans filing for unemployment benefits. This led to President Trump signing a proclamation in April that essentially restricted the entry of certain new immigrants without a valid work visa into the country to stop them from taking American jobs. The proclamation in June also added the entry suspension of new H-1B and H-2B nonimmigrant visas, L1, certain J-1 nonimmigrant visas till Dec 31, 2020, to protect the U.S. labor market.

Although exceptions to the H-1B entry ban were made later on under national interest. Many American tech firms including Facebook, Microsoft, Amazon filed lawsuits against the entry-ban of non-immigrants. The companies feared that the visa restrictions would only hurt American businesses instead of saving American jobs.

In terms of remittances, the H-1B entry ban of immigrants to the U.S. will create a notable decrease in the amount sent especially to countries in South Asia. Highly skilled immigrants from countries like India and China account for the majority of the H-1B visas issued.

Unemployment Rate Improves in the U.S.

By June the unemployment rate improved and stood at 11.1% as businesses started reopening and people got hired again as stay-at-home orders to prevent the spread of COVID-19 got lifted gradually.

Additional 1.8 million jobs were added in July and the unemployment rate fell to 10.2% according to the Department of Labor. While some parts of the country continued to reopen, other regions including Texas, California, Florida, etc had to impose lockdown again and furlough workers due to the spikes in COVID-19 positive cases.

COVID-19 Impact on Remittances

Remittances are money sent by migrant workers back to their home country. It is reasonable to assume that in times of economic crisis in the host country, remittances to their home country will decrease. With the COVID-19 pandemic sweeping the world, immigrants are more vulnerable and highly susceptible to job loss and wage cuts.

According to the UN Secretary, in 30 countries, remittances contribute over 10% of the Gross Domestic Product (GDP). Millions of households are reliant on remittances for their basic sustenance. Without the money flowing in, people in these countries are likely to face socio-economic challenges.

The World Bank in April predicted that the global remittances will decline by 20% this year, the sharpest in recent history. This decline which is roughly about $110 billion in cash flows could deny millions of people access to basic needs like education, health care, shelter.

But the data has been unequal. The expected decline in remittances has not been observed for some countries such as Mexico, Central America, Pakistan, Bangladesh, etc. For instance, the Central Bank of Mexico reported that Mexican workers sent a record of $4 billion in remittances in March, a 35.8% rise from March 2019. On the other hand, there was a dip in the amount sent to countries like the Philippines, Brazil, etc.

In April 2020, personal remittances to the Philippines amounted to $2.276 billion which is 16.1 % lower than what was sent in April 2019 ($2.713 billion). The cumulative remittances from January-April 2020 added up to $10.494 billion as compared to $10.811 billion received for the same period in 2019 which is a decrease of 2.9%. Of the total OFWs remittances received from January-June 2020, 39.7% came from the United States.

By July 2020, coinciding with the lifting of lockdowns in host countries, OFWs sent $3.085 billion, a 7.6% increase from July last year ($2.867 billion). A 12.6% increase in remittances from land-based workers contributed to the sudden growth in remittances despite the dip in the amount sent by sea-based workers in the same month.

Remittances to top receiving countries like India are also projected to decline by 23% this year due to the COVID-19 crisis. Many Non-resident Indians (NRIs) have returned back to India following the global health crisis and economic downturn.

Read more on why returning NRIs are investing in Indian Realty.

Remittances to Mexico from the U.S. remain high during the pandemic

Last year, Mexicans working abroad sent home $36 billion in remittances which contributed significantly to the Mexican economy. The United States has the largest Mexican migrants with over 10 million migrants residing in the country. Most of the workers are employed in industries that are considered essential sectors such as maintenance, construction, service, manufacturing, agriculture, etc. Despite the pandemic, most of the workers were able to stay on the job, hence they were able to send money back home. However, the federal government data showed that the foreign-born Hispanics unemployment rate surpassed that of the general population.

Secondly, the decline in the value of the Mexican peso to the dollar (13% stronger than the peso) proved favorable for sending money home. Hence the uptick in the money transfers.

Another possible reason for the increase in money transfers is that the Mexican workers who lost their jobs due to the coronavirus pandemic received a federal unemployment benefit or unemployment insurance that enabled them to continue sending money back home.

Remittances to Mexico have also been resilient because of the migrants prioritizing sending money to their loved ones. They are compelled to send more money to their family as the economic situation back home worsens during the pandemic.

How to keep remittances flowing during COVID-19 and beyond?

Since remittances are a major lifeline for many countries, measures must be taken to keep it flowing by supporting the migrants.

Some of the ways are as follows:

• Including remittances service as one of the essential financial services in times of such a pandemic (by ensuring that the safety measures are in place)
• Supporting remittances service providers in such difficult times by giving tax breaks on the expenses and fees incurred during business operations
• Migrants having access to formal remittances channels at low transaction costs
• Providing financial literacy to families both in sending and receiving countries
• Encouraging the use of digital solutions for sending money

It is hard to argue with the fact that sending money online is the cheapest and safest way to send money internationally.

Will the Remittances improve as the employment rate in the U.S. improves?

The United States has the largest migrant population in the world. About one-fifth of the migrant's population resides in the U.S. As of today, over 40 million people who were born in another country are living in the country. Naturally, the U.S. is the biggest source of remittances to other countries.

With the COVID-19 situation improving and businesses reopening, many workers who were temporarily laid-off returned to their work. Workers at malls, food outlets, salons, gyms, and others were called back. Sectors that were worse hit such as hospitality and leisure gained back over 500,000 jobs in June. Retail, professional services, healthcare gained in total over half a million jobs.

This is a positive sign because as people start earning, they will be able to send money to their home country to support their family who is heavily dependent on remittances income.

Migration provides the opportunity for the world's poor to break the cycle of poverty and build a better standard of living. On the macro level, migrants constitute 3.5% of the total global population and make a significant contribution to their country's GDP. It is estimated that an amount ranging from $800 billion to $1 trillion could be added to the global economy every year if the migrants are integrated into their host countries in a proper, safe, and efficient manner.

The creation of systems that will enhance remittances flow and also build resilience is needed to face a crisis like this pandemic and other challenges in the future.