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Little Job Growth Makes Labor Migration and Remittances the Norm in Post-Soviet Armenia
By Aleksandr V. Gevorkyan, New School for Social Research
Arkady Gevorkyan, T3 Capital, LLC
and Karine Mashuryan, Chicago-Kent College of Law
Most emigrants come from Yerevan, Armenia's capital and the most populous part of the country.
Emigration from Armenia stretches back decades as various waves of Armenians have left for political and economic reasons. Sociologist Rogers Brubaker calls the Armenian diaspora, with its central notion of a conceptual homeland, one of the "classic" diasporas.
Armenia's Ministry of Foreign Affairs states that about 60 percent of an estimated 8 million Armenians today live outside of the country's borders, with large clusters in Russia and the United States, and smaller numbers across former Soviet Union countries, Europe, and Latin America.
The present-day Republic of Armenia received its independence from the Soviet Union in 1991. Despite economic reforms since then, Armenia's rapid economic growth has been jobless, as a recent World Bank study noted.
Although the National Statistical Service of the Republic of Armenia (NSS) reports an unemployment rate of 7.5 percent for 2006, and an average of 9.2 percent for the 2002-2006 period, these numbers are based on the number of officially registered unemployed. Using a different methodology that relies on labor-force sample surveys, NSS in its 2007 Statistical Yearbook has calculated a significantly higher annual unemployment rate average of 31.4 percent for the 2002-2006 period.
In addition to the lack of jobs in Armenia, the country has persistently high poverty levels. Based on the data from the annual regions survey by NSS, 26.5 percent of the total population, on average, was poor at the end of 2006, down from 34.6 percent in 2004 and 29.8 percent in 2005. Poverty estimates are based on consumption patterns and account for basic food and shelter provisions, which averaged around 21,555 drams in 2006 (US$52 using the 2006 exchange rate) according to the NSS 2007 Social Snapshot and Poverty in Armenia report.
Compounding its economic problems, Armenia — a small land-locked country with limited natural resources — relies solely on its borders with Iran and the Republic of Georgia for land access to the rest of the world and established, but more costly, airlinks. The country remains isolated from neighboring Turkey and Azerbaijan due to the ongoing conflict over an Armenian-populated region that Azerbaijan controlled during the Soviet era.
Labor migration, both temporary and permanent, has been and continues to be a means of coping with poverty and limited job prospects at home. In addition to foreign aid and large one-time investment projects, such as construction projects that Armenia's diaspora has financed, labor migrants' remittances have become an important source of income. However, the country's dependence on remittances has raised concerns.
According to a 2003 study commissioned by the privately funded organization Armenia2020, approximately 800,000 Armenians (of the one-time 3.8 million total) have emigrated from the country since independence. The bulk of permanent emigration took place in the early to mid-1990s while temporary labor migration started in the late 1990s and continues today.
The Armenia2020 study also found that approximately 70 percent of all migrants, based on sample data collected in 2001, leave for countries of the Commonwealth of Independent States (CIS), particularly Russia and Ukraine. Of this sample, roughly 50 percent of migrants can be classified as temporary labor migrants whose goal is to find a temporary job abroad in order to support their families in Armenia. The rest, approximately one-third of all Armenian migrants who did not go to a CIS country, emigrated to either Europe or the United States.
This CIS bias in total emigration flow is in line with a 2005 survey of actual labor migration by Advanced Social Technologies (AST) and the Organization for Security and Cooperation in Europe (OSCE). The survey finds that approximately 90.1 percent of temporary labor migrants found or have been trying to find jobs in CIS countries. The study further reports that the remaining 9.9 percent of labor migrants find jobs in Europe, with France, Germany, and Greece being the most popular destinations.
The AST/OSCE results indicate that the majority of Armenian labor migrants are between the ages of 21 and 50; about one-third of all Armenian labor migrants are between the ages of 41 and 50. The mean age of those working in the European Union and the United States (44.8) is higher than the mean age of those who migrated to CIS countries (38.5).
The AST and OSCE study also finds that, before their first trip abroad, 50.7 percent of labor migrants were involved in some income activity. Within that group, 64.6 percent had permanent jobs and 35.4 percent relied on occasional employment. Yet, a 2003 NSS and TACIS study reports that 19.0 percent of arriving short-term trip passengers and 25.2 percent of departing short-term trip passengers were unemployed. The discrepancy is primarily due to migrants' unwillingness to disclose full information about themselves and their trips.
Out of all migrants, men generally leave the country first, and women join them later. According to official NSS statistics, the number of women leaving the country due to lack of work is half that of men; about six times the number of women as men tend to reunify with their families.
NSS estimates indicate that most emigrants come from Yerevan, Armenia's capital (24.0 percent average over the 2003-2006 period), the most populous part of the country. They also come from remote and less developed northern regions (Lori, Shirak, and Tavush) bordering the Republic of Georgia although poverty rates are higher elsewhere (see Figure 1).
Figure 1. Share of Poverty and Emigration by Region, 2003 to 2006 Average*
*Poverty percent average is for the 2004-2006 period.
Source: Marzes of the Republic of Armenia in Figures, 2001-2005; Marzes of the Republic of Armenia in Figures, 2002-2006; and Social Snapshot and Poverty in Armenia, 2007. www.armstat.am
Recent Labor Migration Flows
Data from various government surveys indicate that approximately 20,000 Armenians leave the country each year, primarily for economic reasons.
The 2007 NSS labor migration survey puts the share of current migrants — those who have engaged in migration over the last 17 years and were working abroad at the time of the survey — at 7.2 to 8.5 percent of the total population, or approximately 253,000 people. These results, however, do not account for prevalent short-term seasonal absences.
A more recent phenomenon has been return migration of Armenians who left between 1990 and 2006. NSS estimates the return migration to be in the range of 8.4 to 9.8 percent of the total population, or about 300,000 people.
Armenians in Europe and the United States generally migrate with families (together or with the rest of the family later joining the breadwinner) in order to establish a permanent residence abroad, the Armenia2020 report found. The US Department of Homeland Security reports that the number of Armenians obtaining permanent residents status each year has doubled since 1997, reaching 6,317 in 2006.
Almost 70 percent of these migrants coming in to the United States permanently are refugees and asylees, and 15 percent reunite with their immediate relatives who are US citizens; those entering on employment and other visas make up the remainder. However, anecdotal evidence suggests that, although the stated motive is fleeing persecution, the majority of Armenians with asylee or refugee status are mainly seeking better employment opportunities to provide for their families in Armenia.
Women represent a large share of immigrants to the United States, where they often work as housekeepers and babysitters, among other low-skilled jobs. But the United States and Europe are not the primary destinations for the majority of Armenian labor migrants.
According to the most recent NSS results and data collected by AST/OSCE, those with fewer skills who migrate temporarily overwhelmingly go to other former Soviet Union countries, namely Russia, Ukraine, and Kazakhstan, which already host ethnic Armenian populations. Migrants' primary occupations range from construction jobs and street market positions to taxi and bus drivers.
Russia's booming economy has persistently attracted a greater portion (84.2 percent) of Armenia's migrants, as evidenced in the recent NSS labor migration study. Although the exact estimate may be disputed, according to the Eurasia Partnership Foundation, about 90 percent of Armenian migrants work in Russia illegally despite Russia's significant, recent efforts to simplify registration rules.
Flow data from the Russian Federation's statistical agency corroborate these findings (see Table 1). While Armenians make up only a fraction of all immigrants from CIS countries, they form the fifth-largest group of labor migrants in Russia. Available census data indicate that 2007 marks a high point for the flow of Armenians to Russia since 1997.
Table 1. Flow of Armenian Migrants to Russia, 1997 to 2007
In addition to the strength of the Russian economy, Russia is an attractive destination for Armenians for a number of reasons. First, Armenians can travel to Russia without a visa (and vice versa). Second, its geographical proximity allows migrant workers to travel back and forth easily. Third, most Armenians speak Russian fluently and share a common cultural and educational background with Russians.
Fourth, highly integrated within Russian society, the Armenian diaspora in Russia, descended from Armenians who settled there generations ago, often employs new migrants in various business activities that the diaspora members own and operate. Finally, thanks to established financial and economic channels, it is relatively easy to transfer earnings from Russia to Armenia.
Remittances have been on the Armenian government's radar screen since the early 2000s, when the amount of money remitted began to sharply increase (see Figure 2).
Figure 2. Estimated Remittances to Armenia (in US dollars), 1995 to 2007
According to estimates based on data from Armenia's Central Bank (CBA) and the World Bank, remittances for 2007 totaled approximately $1.4 billion. The 2007 World Bank study estimates remittances to be roughly 20 percent of Armenia's gross domestic product (GDP) over the past several years.
It is also argued in the same World Bank study and in the NSS survey that total remittances may make up an even larger share of the Armenian economy (two or three times greater than current World Bank estimates).
This is due to two primary reasons. First, the actual amount of remittances likely is much higher since about 35 percent of remittances are sent through informal channels according to the NSS surveys. Second, as the NSS found, 7.4 percent of surveyed households had also received goods from family members abroad, such as clothing and electronics, in addition to monetary transfers.
Given that Russia is the leading destination for Armenian labor migrants, it is not surprising that most remittances (formal and informal) come from Russia, with Russia's share ranging between 72 percent and 84.7 percent from 2005 to 2007, according to the CBA and NSS (see Figure 3). The second-highest flow of remittances came from the United States, followed by Germany.
Figure 3. Share of Individual Noncommercial Money Transfers in Armenia by country, 2005 to 2007
Remittances from Russia seem to demonstrate seasonal variations that increase steadily as a year progresses (see Figure 4). According to migration surveys and anecdotal evidence, the primary reasons for these variations are that Armenians hold seasonal jobs and that migrants send money home before the year-end holidays since most economic activity slows down in Russia during the winter months.
The average transaction amount ranged from $600 to nearly $850. NSS estimates that transfers are made 2.8 times a year on average. About 90 percent of transfers from first-time migrants (i.e., those making their first trip abroad for work) come from Russia within the first three months of the individual's departure from Armenia.
Figure 4. Amount Remitted to Armenia from Russia via Money Transfer Networks and Russian Postal Service (in millions of US dollars), 2006 to 2007
Although most remittances are from Russia, the NSS survey found that most are sent in US dollars, followed by the Russian ruble. The US dollar remains the preferred monetary exchange instrument and store of wealth.
This pattern of sending foreign currency has contributed to the Armenian dram's appreciation in recent years. It also has led to widespread fear of an imminent collapse of Armenia's limited export base as Armenian goods become relatively more expensive abroad.
Armenia's banking system has been quick to adapt to increasing volumes and frequencies of monetary transfers. According to the CBA's September 2007 quarterly report, Armenia's commercial banks participate in at least 18 international transfer systems. Over 80 percent of total private transfers are handled by two banks (Uniastrum Bank with its Unistream transfer system and Anelik Bank) and two transfer systems (Western Union and Bystraya Pochta).
Fees charged per transfer range from zero percent at some banks to a varying percent (as done by Western Union), depending on transfer origination, amount, and receipt currency.
Uniastrum, Anelik, and Bystraya Pochta have numerous branches in CIS countries and fewer in the United States and Europe, while the Western Union service, aside from some presence in CIS countries, is mainly accessible to those in the United States and Europe.
Remittances and Development
Remittances and in-kind transfers of goods from migrant workers abroad play an important role in sustaining a large portion of Armenia's population.
International Labor Organization (ILO) data from 2003 suggest that transfers — broken down into remittances (largest component), social security benefits, and other transfers — make up 22 percent of the average household income. Approximately 47 percent of income is derived from either paid or self-employment (see Figure 5).
Figure 5. Armenia's Average Household Income Share by Income Type, 2003
Source: International Labor Organization, 2003.
The 2007 World Bank report indicates that a rising number of households in Armenia receive remittances. For these households, remittances account for up to 50 percent of their monetary income.
The World Bank report indicates that these funds are used primarily on current consumption, i.e., providing for basic household needs, health care, and, in some cases, even luxury items, with little going into investment. Although recipients save some portion of remittances, there is no precise, reliable data on the amounts saved.
According to the NSS labor migration survey, most remittances are sent to families that have at least one migrant worker abroad. In our earlier work, we found that, in many cases, especially in the 1990s, increased remittances were also associated with higher emigration rates as families saved money to join the breadwinner abroad.
Poverty levels have slightly decreased in Armenia over the last three to four years according to NSS data. Whether this trend is directly related to the impact of remittances is not clear although the World Bank report mentions that external remittances play a complementary role in improving incomes of poor households.
One strong contender for the poverty decrease: growth in private, state employment, and other income shares as indicated in the NSS 2007 report "Social Snapshot and Poverty in Armenia." In addition, the government has cooperated with development agencies to consistently implement various poverty-reduction strategies, such as expanding provision of basic health care, education, and other public services, according to the World Bank.
Policy Developments and Challenges
With a number of other economic and social challenges that Armenia faces, developing adequate labor migration policies has been slow. The lack of reliable data has contributed to the problem, but labor migration recently started to receive more attention in official publications, such as NSS surveys.
Also, Armenia's Department for Migration and Refugees has proposed a draft law that aims to manage labor migration flows and protect migrants' rights. The Overseas Employment law would introduce state-coordinated mechanisms, labor contracts with overseas employers, administrative and legal assistance to potential migrant workers, and licensing of overseas employment procuring agencies. The proposal is currently under review with official agencies.
Recognizing the economic, social, cultural, and political importance of its diaspora, Armenia amended its constitution in 2005 to allow dual citizenship. According to the amendments to the main citizenship law, which the National Assembly passed in February 2007, Armenian citizenship is available to individuals who lawfully reside in Armenia for three years, are proficient in the Armenian language, and are familiar with Armenia's constitution. Applications must be made in person to the appropriate government bodies.
In addition, an individual who marries an Armenian citizen, is of Armenian ancestry, or has at least one parent who is an Armenian citizen may be granted Armenian citizenship. Other considerations in line with international law might apply. Pending the above conditions, Republic of Armenia citizenship is granted by decree of the country's president.
Dual citizenship has immense sentimental and practical value for the Armenian diaspora, which has waited for this opportunity since Armenia's independence in 1991. The law allows thousands of ethnic Armenians to reconnect with their homeland; in addition, it helps bypass posttransition-period red tape in business and property ownership, issues common in most former Soviet states that noncitizens must deal with.
The government has high expectations for the dual-citizenship law. For instance, the government would like business people from the diaspora and former Armenian citizens who emigrated in the last 17 years to establish operations in Armenia. This would encourage further investment in the real economy and help with domestic job creation. Systemized evidence of diaspora investment is yet to be collected and analyzed.
The direct impacts of emigration and remittances on Armenia's labor market, wages, and export-oriented industries also have yet to be fully studied.
Evidence from other countries is inconclusive, reflecting data inconsistencies, sample bias, and country-specific considerations.
Still, a July 2005 International Monetary Fund survey calls remittances "the single-largest source of foreign exchange, exceeding export revenues, official aid, foreign direct investment, and other private capital inflows" for many developing countries.
A March 2007 Financial Times report pointed to remittances inflows as helping sustain the Philippine economy despite concerns over brain drain and postponed structural reforms meant to ignite economic growth and employment. Some economists, diplomats, and UN officials identify remittances as a crucial source of external finance for developing countries, implying a positive relationship between remittances and economic growth.
However, researchers have expressed concerns about the sustainability of and dependence on remittances. In its overview of Armenia's economy, the Asian Development Bank (ADB) calls for prudence and warns of the dangers of overrelying on easy finance. Indeed, various observers (including the authors of the 2003 Armenia 2020 study) have noted that remittances to Armenia, despite their large volumes, do not appear to be a sustainable source for funding domestic economic activity.
For remittances to have a positive impact on Armenia's economy and social well-being, a suitable institutional financial framework is necessary. For example, remittance-backed loans could work in infrastructure development or could help start new businesses.
Other countries with large diasporas and high migration rates have successfully experimented with similar financial instruments, pooling individual transfers into sizeable investment tranches (e.g., nonresident Indians' deposits at the State Bank of India and their use by the Indian government). In Armenia, this could take the form of a dedicated financial institution (e.g., a development bank) that would simplify and facilitate migrants’ money transfers and provide remittance-backed loans.
As mentioned earlier, remittances that are sent primarily in US dollars have contributed to the rising value of the Armenian dram. Recognizing the concern about substantial inflows of foreign exchange in general and to mitigate any negative effects on the overall economy of volatile remittances flows, Armenia's Central Bank, in the third quarter of 2004, started buying large amounts of foreign exchange on the interbank market.
More recently, in the fall of 2007, Armenia's Central Bank implemented regulations that forced commercial banks to raise their reserve ratio (the proportion of bank deposits kept at the Central Bank) on foreign-currency deposits. This move helped to alleviate currency pressures and decrease the economy's dollarization to a certain degree, but the new regulations have not completely prevented the dram's continued appreciation.
Most likely, Armenia will need further substantial and structural reforms to combat high rates of emigration and poverty and to make its economy globally competitive. In the interim, a working model is needed to thwart permanent economic emigration and help coordinate temporary labor migration flows. The options are many and most likely would include engaging the diaspora.
Reported return migration is encouraging and may continue to rise as Armenia's economy grows. Translating all these associated labor and income movements into economic and social benefits is bound to remain high on Armenia's agenda in the coming years.
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