Wage Gaps And Migrantion Costs: An Analysis From Simulation Data

Borjas (1987, 1991 and 1994) developed the self-selection theory, applying Roy's model (1951) to migration studies. He establishes that the characteristics of migrants in terms of skills and abilities are driven by wage distribution differences between the host country and home. In this regard, when the country of origin has higher relative returns for skills and more disperse income distribution, a negative selection of migrants is generated, and vice versa. A great deal of literature has studied Self-selection model to analyse how wage distribution influences migrants' decisions, leading to consistent and inconsistent results. Given the conflicting results in the literature, this paper examines how migration costs and wage differences influence self-selection patterns –i.e. skills in terms of schooling levels. Taking into account that self-selection can not be studied systematically by means of standard data sources because of the lack of data, we propose an analytical model based on the individual investment decision theory (Human Capital theory), applying simulated data by Monte-Carlo method. The theory of individual investment decisions allows us to analyze self-selection patterns across differences in wages and economic conditions at home and in host countries and to introduce uncertainty using a stochastic framework. An empirical application for long-distant migrations –from Ecuador to Spain– is implemented. Our findings show that migrants are positively selected on observable skills between Spain and Ecuador, considering both constant direct migration costs and constant direct migration costs-plus-variable opportunity migration costs. Secondary data from official sources confirm this tendency.