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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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File URL: http://ftp.iza.org/dp2788.pdf
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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. Charles F. Manski, 2004. "Measuring Expectations," Econometrica, Econometric Society, vol. 72(5), pages 1329-1376, 09.
  2. 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.
  3. Matthias Parey & Fabian Waldinger, 2007. "Studying abroad and the effect on international labor market mobility: evidence from the introduction of Erasmus," LSE Research Online Documents on Economics 19383, London School of Economics and Political Science, LSE Library.
  4. Jeff Dominitz & Charles F. Manski, 1994. "Using Expectations Data to Study Subjective Income Expectations," NBER Working Papers 4937, National Bureau of Economic Research, Inc.
  5. John Gibson & David McKenzie, 2010. "The Economic Consequences of "Brain Drain" of the Best and Brightest: Microeconomic Evidence from Five Countries," CReAM Discussion Paper Series 1018, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London.
  6. David McKenzie & Steven Stillman & John Gibson, 2010. "How Important is Selection? Experimental VS. Non‐Experimental Measures of the Income Gains from Migration," Journal of the European Economic Association, European Economic Association, vol. 8(4), pages 913-945, 06.
  7. Orazio Attanasio & Katja Kaufmann, 2009. "Educational Choices, Subjective Expectations, and Credit Constraints," NBER Working Papers 15087, National Bureau of Economic Research, Inc.
  8. Atila Abdulkadiroglu & Joshua Angrist & Susan Dynarski & Thomas J. Kane & Parag Pathak, 2009. "Accountability and Flexibility in Public Schools: Evidence from Boston's Charters and Pilots," NBER Working Papers 15549, National Bureau of Economic Research, Inc.
  9. 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.
  10. 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.
  11. Jeff Dominitz, 1998. "Earnings Expectations, Revisions, And Realizations," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 374-388, August.
  12. 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.
  13. 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.
  14. 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.
  15. 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.
  16. 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.
  17. Orazio P. Attanasio, 2009. "Expectations and Perceptions in Developing Countries: Their Measurement and Their Use," American Economic Review, American Economic Association, vol. 99(2), pages 87-92, May.
  18. 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.
  19. 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.
  20. repec:cup:cbooks:9780521029018 is not listed on IDEAS
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