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Skill Diffusion by Temporary Migration? Returns to Western European Work Experience in Central and East European Countries

  • Anna Iara

This paper contributes to the debate on the effects of migration by providing evidence on the returns to working experience from western Europe in eastern European labour markets. In particular, using the 2003 Youth Central and Eastern Eurobarometer dataset, we test the hypothesis that there are differential returns to foreign as opposed to domestic work experience. Our analysis combines the Mincer wage equation framework and the Roy model of migration. The latter suggests that migration responds to net expected benefits. Hence, return migration is endogenous with respect to differential returns to foreign working experience. To allow for selectivity on observable or unobservable characteristics, we estimate an endogenous switching model in two steps. This procedure combines probit estimates of propensities to work and to acquire foreign work expericence respectively, and OLS estimates of earnings equations for stayers and movers, with the inclusion of nonselection hazards obtained in the first step. The expected wage increase is the difference between post-return migrants' wages and wages under similar conditions in the absence of migration. For any individual, only one of these measures can be observed. We impute the respective counterfactuals from the separate wage regressions. Our analysis shows that movers and stayers are rewarded for different human capital characteristics. We find an average earnings premium for foreign work experience of around 30%. This can be seen as partial evidence for international skill diffusion temporary migrants may upgrade their skills by learning on the job in countries with higher technological development, and subsequently bring human capital to their source country, thus adding to know-how diffusion and the catching-up of their economy. We perform additional empirical analyses to support this interpretation we show that the premium found for return migration does not primarily reward the language proficiencies of returning migrants, and we further provide indicative evidence that no earnings premium is obtained for work-related stays abroad in other central and eastern European transition countries.

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Paper provided by The Vienna Institute for International Economic Studies, wiiw in its series wiiw Working Papers with number 46.

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Length: 43 pages including 14 Tables
Date of creation: Jul 2008
Date of revision:
Publication status: Published as wiiw Working Paper
Handle: RePEc:wii:wpaper:46
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  1. Dustmann, Christian & Kirchkamp, Oliver, 2001. "The Optimal Migration Duration and Activity Choice after Re-migration," IZA Discussion Papers 266, Institute for the Study of Labor (IZA).
  2. George J. Borjas & Bernt Bratsberg, 1994. "Who Leaves? The Outmigration of the Foreign-Born," NBER Working Papers 4913, National Bureau of Economic Research, Inc.
  3. Heitmueller, Axel, 2004. "Public-Private Sector Wage Differentials in Scotland: An Endogenous Switching Model," IZA Discussion Papers 992, Institute for the Study of Labor (IZA).
  4. Augustin Coulon & Matloob Piracha, 2005. "Self-selection and the performance of return migrants: the source country perspective," Journal of Population Economics, Springer, vol. 18(4), pages 779-807, November.
  5. Agnes Hars, 2003. "Channeled East-West labour migration in the frame of bilateral agreements," Budapest Working Papers on the Labour Market 0301, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  6. Alan Barrett & Philip J. O'Connell, 2000. "Is there a Wage Premium for Returning Irish Migrants?," Papers WP125, Economic and Social Research Institute (ESRI).
  7. Catherine Y. Co & Ira N. Gang & Myeong-Su Yun, 2000. "Returns to returning," Journal of Population Economics, Springer, vol. 13(1), pages 57-79.
  8. Halvorsen, Robert & Palmquist, Raymond, 1980. "The Interpretation of Dummy Variables in Semilogarithmic Equations," American Economic Review, American Economic Association, vol. 70(3), pages 474-75, June.
  9. Heckman, James J. & Lalonde, Robert J. & Smith, Jeffrey A., 1999. "The economics and econometrics of active labor market programs," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 31, pages 1865-2097 Elsevier.
  10. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
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