Many countries have witnessed large-scale emigration over the past decades. In parallel,
remittances have increased manifold and have become a main component of capital flows to
developing economies (World Bank, 2005). A growing body of research shows that migration
and remittances can have strong developmental impacts on migrant-sending communities.1
Amongst others, the departure of migrants and the subsequent receipt of remittances have
been found to influence household poverty levels, child health, and even entrepreneurship
(see Adams, 2005; Hildebrandt and McKenzie, 2005; Woodruff and Zenteno, 2007).
One field of particular concern are the labour market effects of migration and remittances.
Many researchers have analysed how the departure of a household member influences the
labour market behaviour of those who stay behind. Most of them find that individuals in
migrant households are characterised by lower labour supply, i.e. they work fewer hours and
the probability of participation in the formal labour market is lower.2 In this context, some
studies have strongly underlined the potential disincentive effects of remittances and moral
hazard problems (e.g. Fullenkamp et al., 2005).
The intuition for the disincentive effect is that individuals who receive regular transfers from
abroad will show less work effort and increase their consumption of leisure, e.g. by leaving
the labour market (cf. Rodriguez and Tiongson, 2001). Supposedly, the wealth from
remittances makes the remaining household members “lazy” (Azam and Gubert, 2006, p.
426), so that “[they] simply stop working and wait from month to month for the overseas
remittance” (Kapur, 2005, p. 152). If such an effect were commonplace, it would obviously
have serious implications for development. In the worst case, emigration and remittances
could lead to a culture of dependency in source communities, along with a reduction of
productive activities, labour shortages and other adverse economic effects (Kapur, 2005).
This paper challenges the above interpretation. With a view to the rich literature on
intrahousehold allocation of time and labour (Juster and Stafford, 1991; Chiappori, 1997) we
argue that the lower probability of labour market participation in migrant households is not necessarily due to leisure consumption. In fact, observed inactivity can have its origin in a
variety of reasons apart from leisure consumption. Here, we focus on two additional reasons,
namely housework and higher education, which might both be strongly affected by migration
and remittances. Consider housework first. The departure of a migrant implies that two
helping hands might be missing for household duties or child care. Accordingly, individuals
in migrant-sending households may choose to provide less labour on the market because it is
more rewarding for them to engage in home production. Besides that, it is well possible that
younger adults in migrant families are more likely to engage in further education, be it due to
the flow of remittances that relieve credit constraints or due to additional incentives for
education. This would then explain why they are less likely to participate in the labour
market.
In the first step of our analysis, we follow the common approach and test whether having a
migrant abroad affects a household member’s probability of participating in the labour
market. Based on a household survey dataset from Moldova, we find clear evidence for the
consensus result: persons living in migrant households indeed appear less likely to be active
on the labour market, i.e. outside their households.
The main aim of this article, however, is to examine the reasons of non-participation. In a
second step, we therefore consider the subgroup of inactive individuals only and investigate
three potential effects of migration and remittances. More precisely, we examine whether
living in a migrant household affects (i) an individual’s attitude of not wanting or needing to
work (disincentive effect), (ii) the likelihood of engaging in home production (labour
substitution effect), and (iii) the decision to engage in higher education (education effect). This
approach differs from the existing migration literature, which has not accounted for the actual
reasons of inactivity.
Overall, we find only weak evidence for disincentive effects. However, our results indicate
that persons in migrant households are more likely to be inactive due to home production
activities. This might be due to intra-household labour substitution between the migrant
working abroad and the inactive members at home. Likewise, we find that migration is an
important predictor of education-driven inactivity. Young adults in migrant households are
much more likely to go to university, which explains their inactivity on the labour market. In
sum, we believe that our results provide some interesting insights on the effects of non-labour 3

income and on the allocation of labour in migrant-sending families.
The remainder of this article is structured as follows. In section 2 we discuss the theoretical
background of our analysis and review the related literature. Section 3 presents the data, the
variables used and some stylised facts on Moldova. Section 4 discusses our empirical
approach and how we tackle potential problems of self-selection and reverse causality. In
section 5, we then provide our empirical results, which will be checked for robustness and
further examined in section 6. Section 7 concludes.