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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. Borjas, George J, 1987. "Self-Selection and the Earnings of Immigrants," American Economic Review, American Economic Association, vol. 77(4), pages 531-53, September.
    2. Rosen, Sherwin, 1978. "Substitution and Division of Labour," Economica, London School of Economics and Political Science, vol. 45(179), pages 235-50, August.
    3. Moscarini, Giuseppe, 2001. "Excess Worker Reallocation," Review of Economic Studies, Wiley Blackwell, vol. 68(3), pages 593-612, July.
    4. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
    5. 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.
    6. 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.
    7. Cohen-Goldner, Sarit & Eckstein, Zvi, 2002. "Labor Mobility of Immigrants: Training, Experience, Language and Opportunities," IZA Discussion Papers 519, Institute for the Study of Labor (IZA).
    8. Angrist, Joshua D, 1996. "Short-Run Demand for Palestinian Labor," Journal of Labor Economics, University of Chicago Press, vol. 14(3), pages 425-53, July.
    9. 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.
    10. repec:ilo:ilowps:338944 is not listed on IDEAS
    11. Giuseppe Moscarini, 2005. "Job Matching and the Wage Distribution," Econometrica, Econometric Society, vol. 73(2), pages 481-516, 03.
    12. Eli Berman & Zaur Rzakhanov, 2000. "Fertility, Migration, and Altruism," NBER Working Papers 7545, National Bureau of Economic Research, Inc.
    13. 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.
    14. 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.
    15. 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.
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    Cited by:
    1. Klaus Nowotny, 2011. "Welfare Magnets, Taxation and the Location Decisions of Migrants to the EU," ERSA conference papers ersa11p133, European Regional Science Association.

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