Youth Self-Employment in Households Receiving Remittances in the Republic of Macedonia

The objective of this study is to investigate whether youths in households receiving remittances in Macedonia have a higher probability of establishing their own businesses. In addition, we investigated whether the effect of remittances on youth labor supply is homogenous across the genders and across ethnic and rural/urban divides. We used the DotM 2008 Remittance Survey and the instrumental variables (IV) approach to address the potential endogeneity of remittances with respect to the self-employment status. We used two instrumental variables which affect remittances, but not the decision to be self-employed, except through remittances: a non-economic motive to migrate and the existence of a migrants’ network. Moreover, we overcome some of the deficiencies of the IV estimation by applying the Roodman’s conditional mixed-process (CMP) estimator. The results robustly suggest that youths in households that receive remittances have a considerably larger probability of establishing their own businesses, ranging between 28% and 33%, compared to their non-youth, non-receiving counterparts. The main policy recommendation is that the Macedonian government should start devising a strategy for channeling remitted money into more productive uses, especially converting those funds into jobs for youths.