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Self-Selection of Migrant Workers: Migration Premium and (no) Returns to Skills

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  • Yashiv, Eran
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    Abstract

    Why do low-skilled workers choose to work in a foreign economy and what determines their wages? The Paper empirically implements the Roy self-selection model to study this question. It does so using a unique dataset on Palestinian workers working locally and in the Israeli economy. The data permit examination of both migrants and non-migrants on a comparable basis and are used to construct the relevant wage equations. The results show that key determinants of self-selection are a substantial migration premium, which lures migrant workers, and very low returns to observable skills in the foreign economy, which deter skilled workers. While the literature has found negative self-selection elsewhere, direct estimation of the relevant second moments - crucial for the determination of self selection - shows that the same findings can be re-interpreted. In particular, we find positive self-selection, leading to a reduction in wage inequality and to worker assignment such that wages are equalized across workers employed in the source and in the host economies. Correcting for selection bias demonstrates that estimates of skill premia for migrants - an important issue in the immigration literature - are upwardly biased if selection is not accounted for.

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    Bibliographic Info

    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4156.

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    Date of creation: Dec 2003
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    Handle: RePEc:cpr:ceprdp:4156

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    Related research

    Keywords: migrant workers; migration premium; selection bias; self-selection; skill premia; wage inequality;

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    References

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    1. Joshua D. Angrist, 1995. "Short-Run Demand for Palestinian Labor," Working papers 95-16, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. repec:ilo:ilowps:338944 is not listed on IDEAS
    3. Eli Berman & Zaur Rzakhanov, 2000. "Fertility, Migration, and Altruism," NBER Working Papers 7545, National Bureau of Economic Research, Inc.
    4. Borjas, George J, 1987. "Self-Selection and the Earnings of Immigrants," American Economic Review, American Economic Association, vol. 77(4), pages 531-53, September.
    5. Cohen-Goldner, Sarit & Eckstein, Zvi, 2002. "Labour Mobility of Immigrants: Training, Experience, Language and Opportunities," CEPR Discussion Papers 3412, C.E.P.R. Discussion Papers.
    6. Card, David, 1999. "The causal effect of education on earnings," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 30, pages 1801-1863 Elsevier.
    7. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
    8. Giuseppe Moscarini, 2005. "Job Matching and the Wage Distribution," Econometrica, Econometric Society, vol. 73(2), pages 481-516, 03.
    9. Heckman, James J & Sedlacek, Guilherme L, 1990. "Self-selection and the Distribution of Hourly Wages," Journal of Labor Economics, University of Chicago Press, vol. 8(1), pages S329-63, January.
    10. Willis, Robert J., 1987. "Wage determinants: A survey and reinterpretation of human capital earnings functions," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 10, pages 525-602 Elsevier.
    11. Oaxaca, Ronald L. & Ransom, Michael R., 1994. "On discrimination and the decomposition of wage differentials," Journal of Econometrics, Elsevier, vol. 61(1), pages 5-21, March.
    12. Rosen, Sherwin, 1978. "Substitution and Division of Labour," Economica, London School of Economics and Political Science, vol. 45(179), pages 235-50, August.
    13. Willis, Robert J & Rosen, Sherwin, 1979. "Education and Self-Selection," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages S7-36, October.
    14. Borjas, George J., 1999. "The economic analysis of immigration," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 28, pages 1697-1760 Elsevier.
    15. Moscarini, Giuseppe, 2001. "Excess Worker Reallocation," Review of Economic Studies, Wiley Blackwell, vol. 68(3), pages 593-612, July.
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    Cited by:
    1. Klaus Nowotny, 2011. "Welfare Magnets, Taxation and the Location Decisions of Migrants to the EU," WIFO Working Papers 393, WIFO.

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