employment, while women in rural areas reduced hours working in non-paid and informal employment.

The second strand of the literature investigates the impact of migration and remittances on wages and other labor market outcomes such as unemployment using a variety of methodologies. Mishra (2014) surveys the rather limited empirical literature on the impact of emigration on real wages in the source countries, which includes his own work on Mexico. This literature includes single country econometric estimates of the determinants of wages which use an estimate of the fall in the domestic labor force (or a specific section of the labor force) due to emigration as an independent variable in the regressions. All of the studies surveyed find that a reduction in the labor force as a result of emigration raises real wages for workers in the source country, by between 2 and 5.5 percent for a 10 percent supply shock to the labor force.

Acosta et al (2007) construct a two sector dynamic stochastic general equilibrium model of a small open economy and test it with data from El Salvador using a Bayesian Vector Autoregression analysis. An inflow of remittances induces both an increase in consumption and increased demand for leisure, and thus reduced labor supply which leads to increased production costs in the relatively labor intensive non-tradeable sector. Bayangos and Jansen (2011) construct a New Keynesian macroeconomic model of the Philippines and use it to simulate a sustained increase in remittances. They find that the increase in migration and remittances leads to a fall in the labor force and a rise in real wages. Although labor productivity increases, this is not by enough to offset the rise in real wages. Consequently, there is a significant increase in real unit labor costs. Bouton et al (2011) using household survey data, find that a supply shock to the labor force caused by emigration raises wages in Moldova.

What can we conclude from this survey of the literature? Remittance receiving households appear to reduce labor market participation and/or the number of hours worked in formal employment, which together with the direct loss of the labor force to emigration reduces the labor supply to the domestic economy. The limited number of studies which examined the impact of remittances on real wages found that this is positive, with the exception of Chami et al (2018). To our knowledge, only Bayangos and Jansen (2011) and Chami et al (2018) have examined the impact of remittances on real unit labor costs, which was found to be positive in both papers, although whereas the former found that remittances raised both real wages and labor productivity, the latter found the opposite effect.

# **3. The relevance of the concept of real unit labor costs as an indicator of external price competitiveness**

Unit labor costs (ULC) are an important metric of the external competitiveness of traded goods largely because labor accounts for a large share of production costs and because labor is mostly not mobile across countries, whereas other factors of production, such as capital, and most intermediate inputs, are internationally mobile. Consequently, there is more scope for variation in labor costs, relative to labor productivity, across countries, than in capital costs or the costs of intermediate goods. In a Ricardian model of trade, relative unit labor costs are the key relative price which determines comparative advantage (Golub et al, 2017). As a result, unit labor costs are also a potentially important determinant of the location of foreign direct investment in traded goods production.

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