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A Land of Milk and Honey with Streets Paved with Gold: Do Emigrants Have Over-Optimistic Expectations about Incomes Abroad?

  • McKenzie, David

    ()

    (World Bank)

  • Gibson, John

    ()

    (University of Waikato)

  • Stillman, Steven

    ()

    (University of Otago)

Millions of people emigrate every year in search of better economic and social opportunities. Anecdotal evidence suggests that emigrants may have over-optimistic expectations about the incomes they can earn abroad, resulting in excessive migration pressure, and in disappointment amongst those who do migrate. Yet there is almost no statistical evidence on how accurately these 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 a significant under-estimation of both unconditional and conditional labor earnings at all points in the distribution. This under-estimation appears driven in part by potential migrants placing too much weight on the negative employment experiences of some migrants, and by inaccurate information flows from extended family, who may be trying to moderate remittance demands by understating incomes.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2788.

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Length: 43 pages
Date of creation: May 2007
Date of revision:
Publication status: published online in: Journal of Development Economics, 2012, [In Press / Corrected Proof]
Handle: RePEc:iza:izadps:dp2788
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  1. Atila Abdulkadiroğlu & Joshua D. Angrist & Susan M. Dynarski & Thomas J. Kane & Parag A. Pathak, 2011. "Accountability and Flexibility in Public Schools: Evidence from Boston's Charters And Pilots," The Quarterly Journal of Economics, Oxford University Press, vol. 126(2), pages 699-748.
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  3. Gilbert,Christopher L. & Vines,David (ed.), 2006. "The World Bank," Cambridge Books, Cambridge University Press, number 9780521029018.
  4. Ruth Vargas Hill, 2006. "The role of risk in shaping production decisions: an empirical analysis," Economics Series Working Papers GPRG-WPS-049, University of Oxford, Department of Economics.
  5. John Gibson & David Mckenzie, 2010. "The Economic Consequences of ‘Brain Drain’ of the Best and Brightest: Microeconomic Evidence from Five Countries," Working Papers in Economics 10/05, University of Waikato, Department of Economics.
  6. J. Dominitz & C. F. Manski, . "Using expectations data to study subjective income expectations," Institute for Research on Poverty Discussion Papers 1050-94, University of Wisconsin Institute for Research on Poverty.
  7. Kaivan Munshi, 2003. "Networks In The Modern Economy: Mexican Migrants In The U.S. Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 118(2), pages 549-599, May.
  8. Delavande, Adeline & Gine, Xavier & McKenzie, David, 2009. "Measuring Subjective Expectations in Developing Countries: A Critical Review and New Evidence," Policy Research Working Paper Series 4824, The World Bank.
  9. David McKenzie & John Gibson & Steven Stillman, 2006. "How Important is Selection? Experimental vs Non-experimental Measures of Income Gains from Migration," Working Papers in Economics 06/03, University of Waikato, Department of Economics.
  10. Charles F. Manski, 2004. "Measuring Expectations," Econometrica, Econometric Society, vol. 72(5), pages 1329-1376, 09.
  11. Luseno, Winnie K. & McPeak, John G. & Barrett, Christopher B. & Little, Peter D. & Gebru, Getachew, 2003. "Assessing the Value of Climate Forecast Information for Pastoralists: Evidence from Southern Ethiopia and Northern Kenya," World Development, Elsevier, vol. 31(9), pages 1477-1494, September.
  12. David McKenzie & John Gibson & Steven Stillman, 2010. "How Important Is Selection? Experimental vs. Non-Experimental Measures of the Income Gains from Migration," Journal of the European Economic Association, MIT Press, vol. 8(4), pages 913-945, 06.
  13. Omar Mahmoud, Toman & Trebesch, Christoph, 2010. "The economics of human trafficking and labour migration: Micro-evidence from Eastern Europe," Journal of Comparative Economics, Elsevier, vol. 38(2), pages 173-188, June.
  14. Jeff Dominitz, 1998. "Earnings Expectations, Revisions, And Realizations," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 374-388, August.
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  16. 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.
  17. Joyce J. Chen, 2006. "Migration and Imperfect Monitoring: Implications for Intra-Household Allocation," American Economic Review, American Economic Association, vol. 96(2), pages 227-231, May.
  18. Orazio Attanasio & Katja Kaufmann, 2009. "Educational Choices, Subjective Expectations, and Credit Constraints," NBER Working Papers 15087, National Bureau of Economic Research, Inc.
  19. Adeline Delavande & Hans-Peter Kohler, 2009. "Subjective expectations in the context of HIV/AIDS in Malawi," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 20(31), pages 817-875, June.
  20. Ruth Vargas Hill, 2010. "Liberalisation and Producer Price Risk: Examining Subjective Expectations in the Ugandan Coffee Market," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 19(4), pages 433-458, August.
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