Cash Back in El Salvador

by on October 27, 2010 at 7:35 am in Economics, Travel | Permalink

Alex, Tyler and I rented a boat and our captain took us to a Salvadoran village, San Francisco, maybe 500 people. 

Speaking Spanish, our captain told us, "The majority of the people from this town are in the United States."  They sent back remittances, which explained the remodeled homes, the satellite dishes, the schoolchildren buying ice cream. 

I thought about Richard Rogerson's paper, "Indivisible Labor, Lotteries, and Equilibrium."  

Rogerson said that there's a high fixed cost of going to work (commuting time, putting on your game face).  So people's work lives will tend to be all-or-nothing: 40 hours or zero hours. 

In that kind of world, it's more efficient for half the population to work full-time rather for the whole population to work half-time; why should everyone have to get up early? 

Rogerson shows such people would rather have a work lottery: The people who draw the short straws have to go to work and have to share their cash with everyone who didn't work. 

The people of San Francisco are living in Rogerson's world: One family member draws the short straw and has to go work in the U.S.  She sends back most of her money, some of which is used to build a vacation/retirement home for the unlucky worker (A Philippine example here).

There is good work on the micro-level causes of remittances: Stark and Lucas for example. But the social causes are underresearched.  One study surveyed here found that even controlling for the usual individual factors, what mattered most was what town you were from.

Key quotes:

“[W]hatever factors governed migrants’ decisions, they operated at the community level"

"[F]urther research is required on the social determinants of remittances"

Rogerson's model is often right, we just don't know why.

1 Ed October 27, 2010 at 6:25 am

The "work lottery" is a pretty interesting concept that never occurred to me before.

I wonder if there are cultural and/ or institutional factors in the United States that would keep this from working as well as it works in less developed countries.

This is a good series of posts, however.

2 tylerh October 27, 2010 at 11:50 am

This village experienced both rising (average) income and dramatically rising income inequality, right?

If so, is San Francisco an exemplar of what has been happening in the OECD for the past 20 years?

Could Rogerson be explaining an additional role for college — to enforce a work lottery?

3 Stephen October 27, 2010 at 4:43 pm

Surely the worker wouldn't be selected by lottery. They must have a better way to select the person who can maximise returns.

4 anon October 28, 2010 at 12:06 am

I speak Spanish. I've lived in Latin America. This is a well established pattern happening everywhere from Mexico to Colombia. And it's a disaster.

Why is this a disaster? Because it's different from what used to occur before? The farms in that region are all near-subsistence anyway, so nobody cares if they go fallow. The men and financees who choose immigration to EE.UU. are obvously better off despite the known problems with long-distance marriages.

Oh, and people used to starve because of the near-subsistence farming, but now they're getting sick with obesity and diabetes. Somebody call a waaahmbulance.

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