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Wage Gaps And Migrantion Costs: An Analysis From Simulation Data

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  • Melania Salazar-Ordóñez

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  • Carlos García-Alonso
  • Gabriel Perez-Alcalá
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    Abstract

    Borjas (1987, 1991 and 1994) developed the self-selection theory, applying Roy’s model (1951) to migration studies. He establishes that the characteristics of migrants in terms of skills and abilities are driven by wage distribution differences between the host country and home. In this regard, when the country of origin has higher relative returns for skills and more disperse income distribution, a negative selection of migrants is generated, and vice versa. A great deal of literature has studied Self-selection model to analyse how wage distribution influences migrants’ decisions, leading to consistent and inconsistent results. Given the conflicting results in the literature, this paper examines how migration costs and wage differences influence self-selection patterns –i.e. skills in terms of schooling levels. Taking into account that self-selection can not be studied systematically by means of standard data sources because of the lack of data, we propose an analytical model based on the individual investment decision theory (Human Capital theory), applying simulated data by Monte-Carlo method. The theory of individual investment decisions allows us to analyze self-selection patterns across differences in wages and economic conditions at home and in host countries and to introduce uncertainty using a stochastic framework. An empirical application for long-distant migrations –from Ecuador to Spain– is implemented. Our findings show that migrants are positively selected on observable skills between Spain and Ecuador, considering both constant direct migration costs and constant direct migration costs-plus-variable opportunity migration costs. Secondary data from official sources confirm this tendency.

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    Bibliographic Info

    Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa11p347.

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    Date of creation: Sep 2011
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    Handle: RePEc:wiw:wiwrsa:ersa11p347

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    1. George J. Borjas, 2000. "Foreign-Born Teaching Assistants and the Academic Performance of Undergraduates," American Economic Review, American Economic Association, vol. 90(2), pages 355-359, May.
    2. Rapoport, Hillel & Docquier, Frédéric, 2005. "The Economics of Migrants’ Remittances," IZA Discussion Papers 1531, Institute for the Study of Labor (IZA).
    3. Daniel Chiquiar & Gordon H. Hanson, 2005. "International Migration, Self-Selection, and the Distribution of Wages: Evidence from Mexico and the United States," Journal of Political Economy, University of Chicago Press, vol. 113(2), pages 239-281, April.
    4. Herbert Brücker & Parvati Trübswetter, 2004. "Do the Best Go West?: An Analysis of the Self-Selection of Employed East-West Migrants in Germany," Discussion Papers of DIW Berlin 396, DIW Berlin, German Institute for Economic Research.
    5. Randall K. Q. Akee, 2010. "Who Leaves and Who Returns? Deciphering Immigrant Self-Selection from a Developing Country," Working Papers id:2829, eSocialSciences.
    6. Edward Funkhouser, 2009. "The Choice of Migration Destination: A Longitudinal Approach using Pre-Migration Outcomes," Review of Development Economics, Wiley Blackwell, vol. 13(4), pages 626-640, November.
    7. George J. Borjas, 1994. "The Economics of Immigration," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1667-1717, December.
    8. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-42, March.
    9. Stark, Oded & Levhari, David, 1982. "On Migration and Risk in LDCs," Economic Development and Cultural Change, University of Chicago Press, vol. 31(1), pages 191-96, October.
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