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Sectoral Wage Gaps and the Returns to Migration

Paper Session

Friday, Jan. 5, 2018 10:15 AM - 12:15 PM

Pennsylvania Convention Center, 104-A
Hosted By: American Economic Association
  • Chair: Edward Miguel, University of California-Berkeley

The Welfare Effects of Encouraging Rural-urban Migration

David Lagakos
,
University of California-San Diego
A. Mushfiq Mobarak
,
Yale University
Michael E. Waugh
,
New York University

Abstract

This paper studies the welfare effects of encouraging rural-urban migration in the developing world. To do so, we build a dynamic incomplete-markets model of migration in which heterogenous agents face seasonal income fluctuations, stochastic income shocks, and disutility of migration that depends on past migration experience. We calibrate the model to replicate a field experiment that subsidized migration in rural Bangladesh, leading to significant increases in both migration rates and in consumption for induced migrants. The model's welfare predictions for migration subsidies are driven by two main features of the model and data: first, induced migrants tend to be negatively selected on income and assets; second, the model’s non-monetary disutility of migration is substantial, which we validate using newly collected survey data from this same experimental sample. The average welfare gains are similar in magnitude to those obtained from an unconditional cash transfer, though migration subsidies lead to larger gains for the poorest households, which have the greatest propensity to migrate.

The Gift of Moving: Intergenerational Consequences of a Mobility Shock

Emi Nakamura
,
Columbia University
Jósef Sigurdsson
,
Stockholm University
Jon Steinsson
,
Columbia University

Abstract

We exploit a volcanic "experiment" to study the costs and benefits of geographic mobility. We show that moving costs (broadly defined) are very large and labor therefore does not flow to locations where it earns the highest returns. In our experiment, a third of the houses in a town were covered by lava. People living in these houses where much more likely to move away permanently. For those younger than 25 years old who were induced to move, the "lava shock" dramatically raised lifetime earnings and education. Yet, the benefits of moving were very unequally distributed within the family: Those older than 25 (the parents) were made slightly worse off by the shock. The town affected by our volcanic experiment was (and is) a relatively high income town. We interpret our findings as evidence of the importance of comparative advantage: the gains to moving may be very large for those badly matched to the location they happened to be born in, even if differences in average income are small.

Reevaluating Agricultural Productivity Gaps With Longitudinal Microdata

Joan Hicks
,
University of California-Berkeley
Marieke Kleemans
,
University of Illinois-Urbana-Champaign
Nicholas Y. Li
,
University of California-Berkeley
Edward Miguel
,
University of California-Berkeley

Abstract

Recent research has pointed to large gaps in labor productivity between the agricultural and non-agricultural sectors in low-income countries, as well as between workers in rural and urban areas. Most estimates are based on national accounts or repeated cross-sections of micro-survey data, and as a result typically struggle to account for individual selection between sectors. This paper uses long-run individual-level panel data from two low-income countries (Indonesia and Kenya). Accounting for individual fixed effects leads to much smaller estimated productivity gains from moving into the non-agricultural sector (or urban areas), reducing estimated gaps by over 80%. Per capita consumption gaps are also small once individual fixed effects are included. Estimated productivity gaps do not emerge up to five years after a move between sectors. We evaluate whether these findings imply a re-assessment of the conventional wisdom regarding sectoral gaps, discuss how to reconcile them with existing cross-sectional estimates, and consider implications for the desirability of sectoral reallocation of labor.

The Agricultural Wage Gap: Evidence From Brazilian Micro-data

Jorge Alvarez
,
International Monetary Fund

Abstract

A key feature of developing economies is that wages in agriculture are significantly below those of other sectors. Using Brazilian household surveys and administrative panel data, I use information on workers who switch sectors to decompose this gap. I find that most of the gap is explained by differences in worker composition. The evidence speaks against the existence of large short-term gains from reallocating workers out of agriculture and favors recently proposed Roy models of inter-sector sorting. A calibrated sorting model can account for the wage gap level observed and its decline as the economy transitioned out of agriculture.
Discussant(s)
Taryn Dinkelman
,
Dartmouth College
Jeremy Magruder
,
University of California-Berkeley
Samuel Bazzi
,
Boston University
Kathleen Beegle
,
World Bank
JEL Classifications
  • O4 - Economic Growth and Aggregate Productivity
  • J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers