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A land of milk and honey with streets paved with gold: Do emigrants have over-optimistic expectations about incomes abroad?

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  • McKenzie, David
  • Gibson, John
  • Stillman, Steven

Abstract

Millions of people emigrate every year in search of better opportunities. Anecdotes of emigrants with over-optimistic expectations about the incomes they can earn abroad suggest excessive migration pressure. Yet there is almost no statistical evidence on how accurately emigrants predict the incomes that they will earn working abroad. In this paper, we combine a natural emigration experiment with unique survey data on would-be emigrants' probabilistic expectations about employment and incomes in the migration destination. Our procedure enables us to obtain moments and quantiles of the subjective distribution of expected earnings in the destination country. We find significant under-estimation of both unconditional and conditional labor earnings at all points in the distribution for males, but reasonably accurate expectations for females. This under-estimation appears driven in part by inaccurate information flows from extended family, by basing expectations on older cohorts, and by differences in the gender wage premium between source and origin countries.

Suggested Citation

  • McKenzie, David & Gibson, John & Stillman, Steven, 2013. "A land of milk and honey with streets paved with gold: Do emigrants have over-optimistic expectations about incomes abroad?," Journal of Development Economics, Elsevier, vol. 102(C), pages 116-127.
  • Handle: RePEc:eee:deveco:v:102:y:2013:i:c:p:116-127
    DOI: 10.1016/j.jdeveco.2012.01.001
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    More about this item

    Keywords

    Expectations; Migration; Natural experiment;
    All these keywords.

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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