Another Economic Casualty: Mexican Remittances

Remittances, the money immigrants send to their home countries, have become an essential economic lifeline for several Latin American nations. Mexico receives more remittances from migrants in the United States than any country in the world. But amid a tanking U.S. economy, the amount Mexicans are sending home dropped this year for the first time on record. Strangely, while Mexico reels, remittances to Central American countries have continued to rise—for now.

November 12, 2008

The amount of money sent home to Mexico by migrants in the United States this August dropped for the first time on record, according to the Central Bank of Mexico and the World Bank. But not all remittances to Latin America are suffering the same sudden shock as Mexico's. Central American banks are reporting continued growth, and Honduras is even showing a record-breaking 11% increase so far this year.

Immigrant rights march in downtown L.A. on May Day, 2006. (By Jonathan McIntosh, C.C. 2.5)

After remittances to Latin America surged 117% from 2002 to 2007, Mexican remittances were down nearly 3% in the first half of this year compared to the same period in 2007. The sub-prime mortgage and credit crises—along with continuing economic volatility in the U.S.—all appear to be likely causes, but Wall Street’s plunge happened too recently to explain the decline.

Since undocumented immigrants make up a large portion of migrant labor, reliable remittance figures are notoriously difficult to pin down with certainty. Alternative methods of transfer, including debit cards and carrying cash in hand, may skew statistics. But the evidence suggests that the actual amount of remittances has declined since 2007.

This drop in remittances has the potential to affect millions of people throughout Mexico, and it will likely hit the poor especially hard. In 2007, $25 billion flowed from the United States to Mexico in the form of remittances, making it the second-largest single foreign exchange earner for the national economy, behind only oil exports. Mexico routinely ranks as one of world’s highest receivers of remittances. These funds typically support local infrastructure, education, food, and other necessities.

So why are Mexicans sending less home? And why are they more vulnerable than Central Americans? Looking at the last two years, falling income, rising unemployment, stricter immigration enforcement, and economic troubles in the United States have all played a role in the drop.

The Financial Times recently noted Latino labor has become increasingly dependent on the U.S. construction industry and migrant workers had benefitted greatly from the housing bubble of the last few years, but that bubble has recently popped. Responding to the drop in demand, the construction industry shed 700,000 jobs in 2007, causing a significant increase in Latino unemployment.

Despite the number of Latinos working in construction, the recent drop in new construction alone is not enough to explain the difference in remittances between Mexicans and Central Americans. Mexican migrant labor patterns largely mirror those of Central Americans, with approximately 25-28% working in construction, according to the Inter-American Development Bank. If a construction downturn were the main factor reducing remittances, then Central Americans would also be reporting declines.

Incomes for Mexican and Central American migrants have been falling across the board since 2006. But Mexican incomes dropped 6.2% between 2006 and 2007, as incomes for other Latinos fell by more than 9%. And yet, despite losing a higher proportion of their income, Central American migrants continue to send more money home than their Mexican counterparts.

In more bad news for immigrants and their families back home, unemployment is rising among migrants. Manuel Orozco, a remittances specialist with the Inter-American Dialogue, points out that Mexican unemployment was at 8% in August 2008, up from 5.4% in January 2007.

Considering falling incomes and rising unemployment for Mexicans and Central Americans, the drop in 2008 may be the result of a trend in decelerating remittances that started in 2006. The Central Bank of Mexico reported that 2006 was the first year that started to show a deceleration in remittances. The Bank attributed the sharp drop to declines in housing construction.

One plausible factor explaining the discrepancy in remittances between the two populations is size. Mexican migrants make up the largest portion of the Latino workforce in the U.S. and their remittances far outpaced Central Americans’ over the last five years. Mexican labor is so intertwined with the U.S. economy that the concentration of migrants may exacerbate an otherwise mild downturn. A recent BBC report showed how the state of Zacatecas in Mexico, for example, has more zacatecanos living in Los Angeles, California than in the actual state. Concentrations of workers and the coinciding dependence on remittances like this may explain Mexican migrant sensitivity.

Immigration enforcement may be another missing piece of the remittance puzzle. The Inter-American Dialogue's Orozco told the Houston Chronicle that the remittance slump this year has more to do with the immigration crackdown as it does with the downturn in housing construction.

Customs and Border Patrol agents have become a fully militarized force. (By

The U.S. Immigration and Customs Enforcement (ICE) agency reported deporting a record high 276,912 undocumented immigrants in 2007—a record likely shattered by this year's numbers. Workplace and employer enforcement through programs like E-Verify, hiring law initiatives, and massive raids have undeniably contributed to the cut in remittances.

A World Bank study suggests a key difference between Central Americans and Mexicans is that Central Americans have relative advantages in securing temporary work visas, making them on the whole somewhat less vulnerable to harsher immigration enforcement. A few hundred thousand workers from El Salvador, Guatemala, and Nicaragua enter the United States legally every year under the Temporary Protected Status (TPS) program.

The decline Mexico is experiencing could soon spread to other parts of Latin America as the financial crisis digs into European markets. Spain is one of the largest remitting nations to Latin America, and a combined downturn in the United States and Spain may hit remittance dependant nations especially hard. And rising inflation in the region, especially food prices, means that the money that does arrive is buying less.

The drop in construction jobs may be an indicator of worse things to come for Latino immigrants, since the full impact of the economic crisis has not yet hit most service industries—restaurant, hotel, domestic work, etc.—which accounts for 40% of Latino immigrant jobs.

The motivations for immigrating to the United States will remain, so the money will continue to flow, but the question on people's minds on the receiving end of the remittance chain might increasingly become: How much?

Zach Dyer is a NACLA Research Associate.

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