Migration decisions and persistent earnings differentials: Evidence from Thailand

• Departmental Seminar

Date and Location

Thursday, January 28, 2016, 4:10 PM - 5:30 PM
ARE Library Conference Room, 4101 Social Sciences and Humanities

Abstract

I estimate the perceived cost of internal migration and associated labor supply elasticity in Thailand using the revealed-preference location decisions of workers. I develop a multiperiod model of the location decision where observed earnings are an imperfect proxy for the net present value of a migration. I use global commodity prices to construct instruments that identify permanent and transitory components of local earnings. Reduced-form evidence suggests that workers are sensitive to the share of the permanent component in an earnings innovation. Given this, I estimate a structural model of migration to recover cost parameters, exploiting variation in net present value induced by the instruments. Over a range of discount rates, I estimate the average cost of migration to an individual to lie between 0.3 and 1.1 times annual earnings. Fixed costs of moving (which include both financial and psychic costs) account for 60 percent of this, with the remaining 40 percent varying by distance. Furthermore, variation in idiosyncratic preferences is more than double the spatial variation in earnings. Using the parameter estimates of the model, I find that migration contributes 8.6 percentage points to local labor supply elasticity, split almost evenly between workers entering a province and fewer locals exiting. The model suggests that 20% of long-term earnings differentials over space can be attributed to perceived moving costs.