How Important Is Selection? Experimental vs. Non-Experimental Measures of the Income Gains from Migration

Abstract

Measuring the gain in income from migration is complicated by non-random selection of migrants from the general population, making it hard to obtain an appropriate comparison group of non-migrants. This paper uses a migrant lottery to overcome this problem, providing an experimental measure of the income gains from migration. New Zealand allows a quota of Tongans to immigrate each year with a lottery used to choose amongst the excess number of applicants. A unique survey conducted by the authors in these two countries allows experimental estimates of the income gains from migration to be obtained by comparing the incomes of migrants to those who applied to migrate, but whose names were not drawn in the lottery, after allowing for the effect of non-compliance among some of those whose names were drawn. We also conducted a survey of individuals who did not apply for the lottery. Comparing this non-applicant group to the migrants enables assessment of the degree to which nonexperimental methods can provide an unbiased estimate of the income gains from migration. We find evidence of migrants being positively selected in terms of both observed and unobserved skills. As a result, non-experimental methods are found to overstate the gains from migration, by 9 to 82 percent. A good instrumental variable works best, while difference-in-differences and bias-adjusted propensity-score matching also perform comparatively well.

The Long-term Impacts of International Migration: Evidence from a Lottery

“…The results show monetary gains to the immigrants similar to the first year effects found by McKenzie et al (2010) and a little less than the impacts after four years reported by Stillman et al (2015). The economic payoff to migrating to a richer country seems to come immediately, and then not grow further, notwithstanding various investments by the immigrants in qualifications, internal mobility, and occupational change.…”

“…About 1500 Tongans come to New Zealand each year under this scheme (Gibson and McKenzie, 2014a); more than six times the number coming via PAC settlement migration. There is no formal interaction between these two migration pathways (seasonal workers are told they have no option to settle), and they select from different parts of the skills distribution in Tonga with the PAC applicant pool positively selected (McKenzie et al, 2010) and the seasonal workers negatively selected by a focus on people not in formal employment (Gibson and McKenzie, 2014b). Moreover, the seasonal workers go to regional New Zealand while Auckland is the first destination for most PAC migrants.…”

“…In the first such study, McKenzie et al (2010) examine the short-term impacts of migrating to New Zealand through the Pacific Access Category and find that Tongan migrants had large wage gains in the first year equivalent to a 263 percent gain in income.…”

“…The typical applicant is an average age of 33 at the time of application, with two-thirds of them married, and an average education level of between 11 and 12 years of schooling (McKenzie et al, 2010). Just over half of the applicants were living in households in which all members would be eligible to migrate if they won, while the rest were living in households that contained extended family such as their parents, siblings, nephews and nieces (Gibson et al, 2011).…”

The Drivers of Diaspora Donations for Development: Evidence from the Philippines

“…If those in the home country are worse off than the migrant, altruism induces migrants to make donations for their home country. Altruism may play an important role as migrants typically multiply their income by working abroad (Clemens et al, 2008;McKenzie et al, 2010) thus widening the income gap between migrants and those who stay behind. The altruism motive predicts that donations increase with migrants' income and the degree they are still attached to their home country.…”