International financial transfers have fallen in cost and become easier to access. We argue in “Remittances-Adjusted Support Ratio,” our new Population and Development Review paper, that this shift has deep implications for the well-researched paradigm of demographic transitions. When young adults emigrate today, their support potential is not entirely lost, as they can support their families by easily sending money back home. In other words, easy and cheap access to remittances has changed the logic of demographic support.

The demographic composition of a country matters. During the period in which a country transitions from having high fertility and mortality rates to low ones, there are many working adults and relatively few dependent children and seniors. This advantageous ratio can pave the way for wonderful prospects during this period and beyond. The best possible outcome is growth of the economy and a decrease in poverty. In other words, a country can fully cash in on its demographic dividend. Yet, if there is not enough employment for the growing workforce, demographic transitions can go terribly wrong. High unemployment, coupled with large youth bulges, increases the risk of conflict, and can have a destabilizing effect on society. While emigration helps reduce such population pressures, the demographic dividend has (historically) been lost with the exodus of workers. The burgeoning role of remittances is changing that paradigm.

To account for the support offered through remittances, we developed a new demographic indicator: the remittances adjusted support ratio (RASR). In our new paper we incorporate remittances into the well-established support ratio by expressing them as worker equivalents. The support ratio is generally defined as the ratio of effective workers to effective consumers in a population. To express remittances (money) as effective workers (people), we divide net remittances by a country’s average labor income. This yields what we call effective shadow workers. For example, if a country receives 1 million USD in remittances and the mean annual labor income of this country is 10,000 USD, then this equates to 100 shadow workers. The money sent by migrants is equal to 100 average annual incomes back home or, in other words, the remittances are equivalent to the support of 100 average workers. To calculate the RASR, we simply add these shadow workers to the numerator of the established support ratio, thereby incorporating their supportive role into the indicator.

We show that, in high income countries, the RASR is not notably different from the classical support ratio, as (negative) net remittances divided by high average incomes yield a negligible number of (negative) shadow workers. However, in middle income countries, the RASR is substantially above the classical support ratio. Even as early as the 1990s, the remittances adjustment constitutes a clearly visible difference, and the gap between the two support ratios has steadily increased since then. Today, the remittance adjustment is particularly large in the Caribbean, Central America, Southern Asia, Eastern Europe, and Central Asia. In the Philippines, for instance, the RASR is more than 10 percent larger than the classical support ratio; in El Salvador it is more than 30 percent larger. Overall, the RASR shows that the demographic support in many countries is much higher than the classical support ratio would suggest. Remittances increasingly support populations in developing and emerging countries, and already play a critical role in economic and demographic support today. Once we take remittances into account, we can see that a country’s demographic composition matters – not just across age groups but also across national borders.

About the Authors

Lukas Tohoff, ROCKWOOL Foundation Berlin and Humboldt-Universität zu Berlin, Berlin, Germany.
Daji Landis, Letizia Mencarini, and Arnstein Aassve, Department of Social and Political Science and Dondena Centre, Bocconi University, Milan, Italy.