1 Self-Selection and the Economics of Immigration George J. Borjas Harvard University June 2010
2 1. Sjaastad on migration (1962) Migration poses two broad and distinct questions for the economist. The first, and the one which has received the major attention, concerns the direction and magnitude of the response of migrants to labor earnings differentials over space. The second question pertains to the connection between migration and those earnings, that is, how effective is migration in equalizing inter-regional earnings of comparable labor?
3 2. Research on Sjaastad s two questions Research on first question (e.g., research on interstate migration flows in U.S.) confirms that regional wage differentials determine size and direction of migration flows. Much less consensus on second question where most of the research uses the international migration context. Studies of labor market impact of international migration have found it difficult to document the predicted inverse relation between immigrant-induced supply increases and wages in receiving countries. Some studies question whether immigrant flows equalize inter-regional earnings at all (Card, 2005). Nature of empirical exercise determines the outcome: Relating wage differences across cities to immigrant-induced labor market shocks tends to find little impact; examining link between immigration and the evolution of the national wage structure finds much larger effects (Card, 1991; Borjas, 2003).
4 3. The migration decision What determines whether to migrate or not? Basic economic model: person migrates if the income gain from migrating exceeds the migration cost Let V 1 be present value of earnings (income) if one migrates to, say, the US Let V 0 be the present value of earnings if one stays in the sending country Migration occurs if V 1 V 0 > C, where C measures the cost of migration
5 4. West Side Story Bernardo: I think I ll go back to San Juan. Anita: I know a boat you can get on. Bernardo: Everyone there will give big cheer. Anita: Everyone there will have moved here. --Stephen Sondheim
6 5. Out-migration from Puerto Rico, as % of population
7 6. A major puzzle Why is there so little migration? Consider the flow between Puerto Rico and the United States. There has been a very large income gap between these two regions for many decades and there are no restrictions on migration between Puerto Rico and the U.S. mainland. 1960: PPP-adjusted per-capita GDP in the United States was 3 times larger than in Puerto Rico. 1998: PPP-adjusted per-capita GDP was still 3.5 times larger in the United States. PR = $21,500; USA = $34,300. Source: Penn World Tables Why did 70 percent of Puerto Ricans choose no to move?
8 7. Some theory A worker moves as long as the discounted gains from moving exceed migration costs. The marginal mover is characterized by: w1 w0 C r where w 1 gives the wage in the United States; w 0 gives the wage in the source country; r is the rate of discount; and C gives migration costs.
9 8. Migration costs must be VERY large w 1 w 0 r C C, Assuming rate of discount is 3 percent, migration costs at the margin must be $426,667. So 70 percent of Puerto Ricans have migration costs that exceed 427,000. What exactly is the nature of these costs?
10 9. The selection problem The immigrant flow is a non-random sample of the population from the countries of origin Which persons leave the country of origin and which persons stay there?
11 10. Ad hoc theories of selection Benjamin Franklin, 1753: German immigrants are the most stupid of their own nation. George Patton, 1943: When we land, we will meet German and Italian soldiers whom it is our honor and privilege to attack and destroy. Many of you have in your veins German and Italian blood, but remember that these ancestors of yours so loved freedom that they gave up home and country to cross the ocean in search of liberty. The ancestors of the people we shall kill lacked the courage to make such a sacrifice and continued as slaves.
12 11. More ad hoc theories of selection Chiswick (1978): immigrants are more able and more highly motivated than natives. Carliner (1980): immigrants choose to work longer and harder than nonmigrants
13 12. Theory of selection: The Roy model Suppose immigrants choose to live in the country that maximizes their income. There is a linear relationship between wages and skills in each country: log wage j = a j + r j S The intercept a j gives the earnings of a person with little (zero) skills; the slope r j gives the rate of return to skills in country j. Skills increase earnings in both the country of origin and in the United States. There are no migration costs
14 13. Positive selection Log wage U.S. Source Country a S a US Do Not Move Move s P Skills
15 14. Negative selection Log wage Source Country U.S. a US a S Move Do Not Move s N Skills
16 15. Impact of decline in U.S. incomes or increase in migration costs (positive selection) Log wage U.S. Source Country a S a US s P s * Skills
17 16. Impact of decline in U.S. incomes or increase in migration costs (negative selection) Log wage Source Country U.S. a US a S s * s N Skills
18 Entry wage (in logs) 17. Entry wage of immigrants and income inequality in the source country Each point represents a national origin group 0.8 Japan Belgium Sw itzerland UK Sw eden Canada Netherlands France Regression line indicates that a 25-unit increase in the Gini coefficient--roughly the difference betw een the UK and Mexico--low ers the w age by 30 percent Australia South Africa Spain Turkey Iraq Poland Brazil Malaysia China Honduras Mexico Measure of wage inequality (Gini coefficient)
19 Emigrant share 18. Trends in emigrant share, by education, Mexico (Chiquiar-Hanson) 0.3 High school graduates 0.2 High school dropouts, 8-11 Some college High school dropouts, College graduates Year
20 19. Chiquiar-Hanson and Fernandez-Huertas Chiquiar-Hanson use Census data Fernandez-Huertas uses the ENET: The ENET is the household survey used to calculate the official employment statistics for Mexico from the second quarter of 2000 until the end of 2004 The ENET is very similar to the Current Population Survey in the United States Since every household is interviewed five times, with one of the five panels dropping out of the sample each quarter, a researcher can match the data on wages or schooling of an individual in a quarter in which she lives in Mexico with the migration behavior of that individual in the following quarter.
21 20. Wage distributions of Mexican migrants and non-migrants (Fernandez-Huertas, 2009)
22 21. Degree of selection (diff. in wages) (Fernandez-Huertas, 2009)
23 22. The Puerto Rican setting Puerto Rico became a possession of the United States after the Spanish-American war in Jones Act of 1917 granted U.S. citizenship to all Puerto Ricans, so Puerto Ricans can move freely to the United States without legal restrictions facing immigrants from foreign countries. Little out-migration until after World War II. High unemployment in postwar Puerto Rico and introduction of low-cost air travel sparked initial out-migration (the 6-hour flight from San Juan to New York City cost less than $50). Most Puerto Rican out-migrants settled in New York City (in 1970, 68.9 percent of the Puerto Rican born population in the United States lived there)
24 23. Data U.S. IPUMS 1970, 1980, 1990, 2000 (3% in 1970, 5% in ) Men aged 14 to 64 years old Puerto Rican Census 1970, 1980, 1990, 2000 (3% in 1970, 5% in ) Men aged years old Definition of skill groups (as in Borjas, 2003) Five education groups: 0-8, 9-11 years, 12 years, years, 16+ years Four labor market experience groups: 1-40 years in ten-year intervals 20 skill groups over 4 cross-sections for 80 observations
25 24. Out-migration and in-migration in Puerto Rico, as % of workforce
26 25. Per-capita GDP in Puerto Rico, relative to US (adjusted for international prices)
27 26. Puerto Rican wage structure Variance of log weekly earnings Puerto Rico United States
28 Out-migrant share 27. Out-migration rates from Puerto Rico, by education years years years 12 years At least 16 years Year
29 Out-migrant share 28. In-migration of U.S.-born persons of Puerto Rican descent, by education At least 16 years years years 12 years years Year
30 29. Relation between in-migrant and out-migrant shares
31 30. Determinants of migration flows Out-migrant share of Puerto Rican born workers: q ijt US (w ijt w PR ijt ) other variables, ijt w US = wage that Puerto Rican out-migrants actually earn in the U.S. labor market w PR = wage that the typical Puerto Rican stayer earns in Puerto Rico
32 31. Determinants of out-migrant share of Puerto Rican workers
33 32. Determinants of out-migrant share of U.S. born Puerto Ricans
34 33. Wage consequences
35 34. Two-equation model q ijt US 1 w ijt w PR 2 ijt other variables ijt. PR w ijt 1 p ijt 2 q ijt other variables ijt. BIG CAVEAT: Instruments are the potential U.S. wage in the out-migrant share equation; and the in-migrant share in the Puerto Rican wage equation.
36 35. IV estimates
37 36. Conclusion A separation theorem has guided much of the literature in the economics of immigration. Some studies examine the determinants of the flows; other studies examine the consequences of the flows. And the twain never meet. Let s throw the separation theorem away. Wages in both sending and source countries affect the size and composition of the immigrant flow, and the size and composition of the immigrant flow affect wages in both sending and receiving countries.
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