Household Surveys and the New Definitions of Remittances

1. Household Surveys and the New Definitions of Remittances Michael Mann Expert Group Meeting on the Contribution of Household Surveys to Measuring Remittances January 14-15, 2008

2. BEA’s Remittances Estimates in Context US International Transactions Accounts in 2006(billions of US dollars)

3. Overview • The new definitions of remittances • U.S. experience in compiling remittances • “Translating” new definitions to surveys • Information needed from household surveys: priorities, and the limitations of survey data

4. New Definitions: Background • Technical Sub-group on Movement of Natural Persons (TSG) charged with clarifying definitions and concepts associated with remittances in 2005 • The TSG’s recommended definitions have been incorporated into the draft BPM6, which will be published in 2008

5. New Definitions • Personal Transfers • Personal Remittances • Total Remittances • Total Remittances and Transfers to NPISHs • Four definitions benefit policy makers • Clarified definitions facilitate collection and international comparability

6. Personal transfers • Definition Personal transfers consist of all current transfers in cash or in kind made or received by resident households to or from other non-resident households INCLUDES: Transfers irrespective of the source of senders income EXCLUDES: Funds deposited abroad for ones own account as a financial investment

7. Personal Remittances • Definition (from the perspective of recipient country) (i) personal transfers receivable (ii) plus compensation of employees (COE) receivable (iii) minus taxes and social contributions payable (related to compensation of employees) (iv) minus transport and travel expenditures payable by residents employed by nonresidents (v) plus capital transfers receivable from households. • Essentially household-to-household transfers plus earnings net of expenditures of non-resident workers • Personal remittances - supplementary item in BPM6 Personal transfers, and COE - standard items

8. Total Remittances • Definition (recipient country) Total remittances = personal remittances + social benefits • Includes all transfers directly to households from any institutional sector • Supplementary item in BPM6

9. Total remittances and transfers to NPISHs • Definition (recipient country) Total remittances and transfers to non-profit institution serving households = total remittances receivable + current transfers receivable by NPISHs + capital transfers receivable by NPISHs • Supplementary item in BPM6

10. US Compilation of Personal Transfers • Model-based approach • # of remitters x per-capita transfer arrayed by: • duration of stay in the United States • family status • country of origin • gender

11. Outbound Personal Transfers • Four variables • Foreign-born population (one year rule) • % of foreign-born population that remits • Income of the foreign-born population • % of income remitted

12. Outbound Personal Transfers • Population and income from U.S. Census Bureau • % of population that remits and % of income remitted based on surveys/studies • Characteristics of foreign-born population • Duration of stay in the United States • Family type • Country of origin • Gender

13. US Compilation of Personal Remittances • # of temporary workers x average income • Mostly seasonal Mexican workers • BEA’s measure of net compensation

14. Total Remittances • Social Benefits • U.S. Government pension payments estimated using administrative data • Private pension payments estimated using limited partner country data

15. Total Remittances & Transfers to NPISHs • BEA does not measure transfers receivable by NPISHs; does measure transfers through U.S.-based NPISHs • Estimated by collecting data on voluntary survey of U.S.-based non-profit organizations

16. Assessment of U.S. Methods • Strengths • No downward bias from a reporting threshold • Covers all means of transfer • Weaknesses • Lack regular, representative, quality information from household surveys on which to base % of pop that remits and % of income remitted • Not sensitive to changes over time or unusual events.

17. Special Challenges Faced by the U.S. • Large undocumented foreign-born population • Need updated survey data on the remitting behavior of the foreign-born population

18. “Translating” new Definitions to Surveys • Use BPM6 definitions of remittances and concept of residency • Measure personal transfers, personal remittances, and total remittances by the receiving country, and the former two in the sending country • For personal remittances, collect net earnings of nonresidents workers rather than the gross flows because the amount workers expect to bring home may be easier to collect • Surveys can be designed to fill gaps in data sources: e.g. collect data sent thru informal channels to supplement data available on transactions thru formal channels • Useful for asking about motive for remitting

19. Household Surveys: Priorities and Limitations Priorities • Identify the remitting population (sending country) or the recipient population (recipient country) • easier to establish than the amount remitted • Identify the amount remitted per person/household Limitations • Senders may tend to over-report to reflect their generosity • Recipient may underreport because of concerns about tax on income • Recall problem – may not be significant for personal transfers • Expect-to-send problem • Should exclude funds deposited abroad for own account

20. Compilation Guide • Drafted by the Luxembourg Group on Remittances • Discusses various approaches and data sources for compiling remittances • Household surveys will be discussed both as a way of directly measuring remittances and as a way to estimate parameters for models • Guide to be released by the IMF in mid 2008