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Wages Differentials and Interregional Migration in the U. S. : An Empirical Test of the "Option Value of Waiting" Theory

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  • Roberto Basile
  • Jaewon Lim

Abstract

The "option value of waiting" theory applied to interregional migration predicts that a potential migrant actually moves only when the wage differential between origin and destination places exceeds a certain threshold, which might be much higher than the Marshallian trigger. In this paper we exploit the panel structure of a dataset on interregional migration among nineteen MSAs in the US from 1993 to 2001 to estimate a modified dynamic gravity model of migration. In particular, using both semi-parametric and GMM estimators (taking into account possible endogeneity of the explanatory variables), we find robust evidence of a non-linear relation between migration and wage differentials. With a wage differential smaller than a certain threshold, people rarely move controlling for the other socioeconomic variables. Only beyond the threshold, the interregional migration grows rapidly proving an important role of the option value of waiting in migration decision process.

Suggested Citation

  • Roberto Basile & Jaewon Lim, 2006. "Wages Differentials and Interregional Migration in the U. S. : An Empirical Test of the "Option Value of Waiting" Theory," ERSA conference papers ersa06p263, European Regional Science Association.
    • Handle: RePEc:wiw:wiwrsa:ersa06p263
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    Cited by:

    1. Etzo, Ivan, 2008. "Internal migration: a review of the literature," MPRA Paper 8783, University Library of Munich, Germany.
    2. Jaewon Lim, 2011. "Does wage differential driven migration continue to exist? Tests on the role of regional economic structure in wage differential driven migration," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 47(1), pages 213-233, August.
    3. Marius Braun, 2021. "A Real-Options Analysis of Climate Change and International Migration," MAGKS Papers on Economics 202138, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    4. Etzo, Ivan, 2010. "The determinants of the recent interregional migration flows in Italy: A panel data analysis," MPRA Paper 26245, University Library of Munich, Germany.
    5. World Bank, 2012. "In Search of Opportunities : How a More Mobile Workforce Can Propel Ukraine’s Prosperity (Vol. 2 of 2) : Technical Report," World Bank Publications - Reports 12287, The World Bank Group.
    6. Braun, Marius, 2022. "A Real-Options Analysis of Climate Change and International Migration," VfS Annual Conference 2022 (Basel): Big Data in Economics 264006, Verein für Socialpolitik / German Economic Association.

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