The Returns to International Migration in a Free Mobility Setting: Evidence from Austria and Germany

How big are the gains to international migration? How do they vary across mi- grants? We study these questions using linked administrative data for Austria and Germany, focusing on migrants who were steadily employed 2-4 years be- fore their move and using their previous co-workers as a comparison group for a difference-in-differences design. We combine data from the origin and desti- nation countries for 5 years after the move, allowing us to assess the gains for those who remain in the destination and those who return. On average, mi- grants from Austria to Germany experience an immediate and persistent rise of around 13% in their daily wage relative to their matched co-workers, while migrants from Germany to Austria gain about 4%. The higher returns for Aus- trians are mainly driven by higher average wages in Germany, rather than by differential selection of migrants. Consistent with a dynamic learning model, the returns to migration are largest for migrants who remain in the destination country, smaller for those who return after 1-4 years, and zero or even slightly negative for those who return in less than a year. They are also larger for mi- grants who follow established cross-border networks between workplaces. To help interpret our findings we conduct a parallel analysis of domestic migrants who move to a larger city (Vienna or one of the 5 largest cities in Germany). “Big city†movers experience gains in wages of about 5% for Austrians and 10% for Germans. Again the gains are largest for those who remain in the des- tination city, with smaller effects for those who move on.