Remittances

Remittances from Salvadorans living and working in the United States, sent to family in El Salvador, are a major source of foreign income and offset the substantial trade deficit of $4.12 billion. Remittances have increased steadily in the last decade and reached an all-time high of $3.32 billion in 2006 (an increase of 17% over the previous year).[26] approximately 16.2% of gross domestic product(GDP).

Remittances have had positive and negative effects on El Salvador. In 2005 the number of people living in extreme poverty in El Salvador was 20%,[27] according to a United Nations Development Program report, without remittances the number of Salvadorans living in extreme poverty would rise to 37%. While Salvadoran education levels have gone up, wage expectations have risen faster than either skills or productivity. For example, some Salvadorans are no longer willing to take jobs that pay them less than what they receive monthly from family members abroad. This has led to an influx of Hondurans and Nicaraguans who are willing to work for the prevailing wage. Also, the local propensity for consumption over investment has increased. Money from remittances has also increased prices for certain commodities such as real estate. Many Salvadorans abroad earning much higher wages can afford higher prices for houses in El Salvador than local Salvadorans and thus push up the prices that all Salvadorans mus
t pay.

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