The Effect of Expected Income on Individual Migration Decisions

Abstract

The paper develops a tractable econometric model of optimal migration, focusing on expected income as the main economic influence on migration. The model improves on previous work in two respects: it covers optimal sequences of location decisions (rather than a single once-for-all choice), and it allows for many alternative location choices. The model is estimated using panel data from the NLSY on white males with a high school education. Our main conclusion is that interstate migration decisions are influenced to a substantial extent by income prospects. The results suggest that the link between income and migration decisions is driven both by geographic differences in mean wages and by a tendency to move in search of a better locational match when the income realization in the current location is unfavorable.2 See Greenwood [1997] and Lucas [1997] for surveys.3 Holt (1996) estimated a dynamic discrete choice model of migration, but his framework modeled the move/stay decision and not the location-specific flows. Similarly, Tunali (2000) gives a detailed econometric analysis of the move/stay decision using microdata for Turkey, but his model does not distinguish between alternative destinations. Dahl (2002) allows for many alternative destinations (the set of States in the U.S.), but he considers only a single lifetime migration decision. Gallin (2004) models net migration in a given location as a response to expected future wages in that location, but he does not model the individual decision problem. Gemici (2007) extends our framework and considers family migration decisions, but defines locations as census regions.

On the dynamics of interstate migration: Migration costs and self-selection

“…At any rate, such an estimate appears very high and even the authors of these studies are somewhat sceptical about their …ndings. Kennan and Walker (2003) suggest that some kind of omitted variable problem may drive the high cost-estimate. In particular, they suggest that an unobservable wage component is correlated to the decision to stay.…”

“…Taking into account these feedbacks, we extend the structural approaches of Davies, Greenwood, and Li (2001) and Kennan and Walker (2006) and suggest a fully structural model of migration that is based upon dynamic optimization and hence takes into account the dynamic character of the migration decision. This allows us to track the dynamic evolution of migration incentives at the macroeconomic level, but it comes at the cost that we have to reduce the model to a bi-regional setup for numerical feasibility.…”

International job search: Mexicans in and out of the US

“…Thus, the literature has evolved to analyze migration using dynamics models that allow for bidirectional migration over the life cycle. Interestingly, most of these models focus their attention in the formation and impact of social networks formed by migrants (Delechat 2001, Angelucci 2002, Haslag, Guzman and Orrenious 2004, Colussi 2006, Kennan and Walker 2006, Gemici 2007). …”

Does Foreign Language Proficiency Foster Migration of Young Individuals within the European Union?

“…On the other hand, low female labor force participation rates in countries of origin imply reduced professional options for women, potentially increasing migration. Differences in wages are commonly included in estimations of internal migration decisions -see Kennan and Walker [2011] for the United States. In estimations of cross-country migration, the use of wage differentials has been limited due to problems of data availability; one exception is Bertoli et al [2013] who consider migration from Ecuador to Spain and to the United States.…”