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Wage Gaps And Migrantion Costs: An Analysis From Simulation Data

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  • Melania Salazar-Ordóñez

    ()

  • Carlos García-Alonso
  • Gabriel Perez-Alcalá

Abstract

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.

Suggested Citation

  • Melania Salazar-Ordóñez & Carlos García-Alonso & Gabriel Perez-Alcalá, 2011. "Wage Gaps And Migrantion Costs: An Analysis From Simulation Data," ERSA conference papers ersa11p347, European Regional Science Association.
  • Handle: RePEc:wiw:wiwrsa:ersa11p347
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    References listed on IDEAS

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    1. George J. Borjas, 2000. "Foreign-Born Teaching Assistants and the Academic Performance of Undergraduates," American Economic Review, American Economic Association, vol. 90(2), pages 355-359, May.
    2. Herbert Brücker & Parvati Trübswetter, 2007. "Do the best go west? An analysis of the self-selection of employed East-West migrants in Germany," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 34(4), pages 371-395, September.
    3. Rapoport, Hillel & Docquier, Frederic, 2006. "The Economics of Migrants' Remittances," Handbook on the Economics of Giving, Reciprocity and Altruism, Elsevier.
    4. Akee, Randall K. Q., 2007. "Who Leaves and Who Returns? Deciphering Immigrant Self-Selection from a Developing Country," IZA Discussion Papers 3268, Institute for the Study of Labor (IZA).
    5. George J. Borjas, 1994. "The Economics of Immigration," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1667-1717, December.
    6. Stark, Oded & Levhari, David, 1982. "On Migration and Risk in LDCs," Economic Development and Cultural Change, University of Chicago Press, vol. 31(1), pages 191-196, October.
    7. Daniel Chiquiar & Gordon H. Hanson, 2005. "International Migration, Self-Selection, and the Distribution of Wages: Evidence from Mexico and the United States," Journal of Political Economy, University of Chicago Press, vol. 113(2), pages 239-281, April.
    8. Edward Funkhouser, 2009. "The Choice of Migration Destination: A Longitudinal Approach using Pre-Migration Outcomes," Review of Development Economics, Wiley Blackwell, vol. 13(4), pages 626-640, November.
    9. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-142, March.
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