Remittances from the U.S. Discourage Mexicans from Working

By Kausha Luna, January 25, 2017

Throughout his campaign, President-elect Donald Trump spoke of the possibilities of blocking remittances to Mexico or imposing taxes on these transfers, in order to finance the border wall. In response, President Mexican Peña Nieto recently stated that "millions of Mexican families, principally those of low means, depend on these resources."

Mexico's concerns are underlined by the fact that remittances are the second highest source of income for the country, behind automotive exports. At the global scale, Mexico is the fourth-largest remittance recipient, following India, China, and the Philippines. Regionally, Mexico accounts for over one-third of remittances sent to Latin American (37.9 percent), making it the top recipient. Guatemala falls second in the region, and receives four times less than Mexico (9.2 percent).

During a meeting with Mexican consuls and ambassadors earlier this month, President Peña Nieto noted that in the first eleven months of 2016 Mexico received over $24 billion in remittances. This is a 9.04 percent increase over the previous year and the largest annual increase in a decade. Remittances to Mexico have been on an upward trend since 2013.

According to a BBVA Research report, in the year 2015 95.6 percent of the remittances to Mexico came from the United States, totaling $23.68 billion. Canada ranked second with a total of $254.4 million sent to Mexico in 2015. Of the money sent to Mexico 97.5 percent is sent via electronic transfers. Data shows that the top ten sending states in the United State are as follows: California, Texas, Illinois, New York, Georgia, Florida, Minnesota, Arizona, North Carolina, and Colorado. Based on data from Mexico's Consumer Protection Agency, the average cost of sending $300 to Mexico from various American cities varies; Chicago has the lowest sending cost at $5.50 while Houston and Indianapolis have the highest sending cost ($8.90). The sending costs from other cities are: $7.50 (Dallas), $8.50 (Miami), $8.70 (New York), $8.80 (Los Angeles, Sacramento, and San Jose).

A professor at Mexico's Universidad Iberoamericana recently noted that the actions suggested by President Trump would be a huge blow to the Mexican population, particularly those with low incomes. However, he also stated that the rise in remittances implies ''several social problems." The academic highlighted that 1.29 million households are economically dependent on remittances, and added that there are entire municipalities that are supported by this income. According to data from the Bank of Mexico (the country's central bank), four of the top ten receiving municipalities (Puebla, Morelia, Leon, and San Luis Potosi) are located in states with the highest dependence on remittances, as a percent of their GDP. Moreover, the university professor lamented that the flow of remittances leads many to stop working and then they sustain themselves with the money coming from the United States. As my colleague Dan Cadman recently wrote, "the heavy reliance on remittances has permitted Mexican politicians and business leaders to sidestep many of the institutional changes need to better life for ordinary Mexicans so they don't have to think about the trek north to achieve financial stability."

On Monday, President Peña Nieto reiterated that one of the main objectives for the Mexican government is to ensure that President Trump maintains the free flow of remittances.

Such dependency has also been a point of concern in Honduras. Data from a 2007 report by the Honduran Central Bank highlights that remittances have a negative impact on the labor force, as receiving able workers often stop looking for jobs and others use remittances as early retirement funds. More recently, Honduras' business sector called for the Honduran economy not to rely on remittances and urged an increase in productivity.

Under the dependency theory, dependencia theorists contended that the world economy is divided into the industrial "center" (the U.S. and Western Europe) and the commodity-producing "periphery." The dichotomy functions such that the center enriches itself at the cost of the periphery. In the world of immigration, mass emigration from Latin America produces cheap labor for the "center" and enriches businesses and their lobbying cronies — arguably at a cost to the labor force and productivity of sending countries. This raises the question, are U.S. policies of mass immigration, and the consequential practice of remittance sending, the new face of the dependency theory?