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Labor Mobility. Some stats.: 4% of workers in their 20’s switch jobs in a given month, 3% of population in US moves across state lines in a given year, and 1 million immigrants, legal and illegal, enter US each year.
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Some stats.: 4% of workers in their 20’s switch jobs in a given month, 3% of population in US moves across state lines in a given year, and 1 million immigrants, legal and illegal, enter US each year. Why these stats.? In economic terms workers want to improve their economic situation and firms want to hire more productive workers. (Some move for other reasons, but we focus on the economics.)
Migration as human capital investment Let A be the name of the place where person is from - the source, B is the name of the place where the person might go - the destination, PVi is the present value of lifetime earnings in place i, where i = A or B, and M is the moving cost from A to B and includes van lines cost, real estate commissions and the like and even the “psychic costs” of missing family and friends. The person will migrate to B if the net gain to migration is positive, i.e., PVB - PVA - M > 0
Our result means moving is just like education - take it if it pays off. There is a greater chance people move if - PVB grows while all else is the same (thar is gold in them thar hills) -PVA falls while all else is the same (this place is bumming me out, let’s go) -M decreases while all else is the same (it’s really cheap to get there, let’s check it out.) This model was just about 1 person. Let’s check out the story for a family when there are potentially two earners.
Family Migration Say dPV = PVB - PVA, dPVh is the husband’s change in income, and dPVw is the wife’s change in income. Ignoring moving costs, the family will move if dPVh + dPVw > 0. Now if both dPVh and dPVw > 0 this is really good and the family moves. Now if dPVh < 0 and dPVw > 0 and |dPVh| < |dPVw|, then he loses if they move and she does better and the net change for the family is better so they move. He is then called a tied mover. Now if dPVh > 0 and dPVw < 0 and |dPVh| < |dPVw|, then he gains if they move and she does not and the net change for the family is worse so they don’t move. He is then called a tied stayer.
Data on migration suggests migration rates of families is 4% less when the spouse works than when spouse does not work. Immigration performance in the US job market earnings Immigrants Age-Earnings profiles Natives age
The age-earnings profiles on the previous screen are based on cross-sectional data. This means at a point in time, in each group, people of the same age have their income averaged and we see the average income across these ages. 3 notable features from the graph - young immigrants, and thus recent immigrants, make less than natives, - the immigrant profile is steeper than the natives, suggesting immigrants catch up with natives, and - at later age immigrants earn more than natives. One explanation for the noticeable features in the graph is that only “really good” immigrants come and after they learn about life here they do really well.
Another interpretation - cohort effects Some assumptions - immigrants come here at age 20, - there was a wave of immigrants who came here in 1960 who had an age-earning profile above the natives profile, - there was a wave of immigrants who came here in 1980 who had an age-earning profile the same as the natives profile, - there was a wave of immigrants who came here in 2000 who had an age-earning profile below the natives profile,
earnings P 1960’s wave 1980’s wave and natives 2000’s wave p Q r R 20 40 60 age
What is observed in 2000 earnings immigrants P natives p Q r R 20 40 60 age
If the cross section is taken in 2000 the profile for the natives will be r Q p for ages 20, 40 and 60 respectively. For the immigrants though, the profile will be R Q P. R will come from the recent immigrants who have a lower profile than the natives. Q is from the profile of the 1980 immigrants and they would be the same as the natives. P is from the profile of the 1960 immigrants and they were better than the natives. So, what our story tells us so far is that there is an explanation for the cross section data to show immigrants at older ages making more than natives. But this may not hold true for the 2000’s wave because their profile is always lower than natives.
So, because the different waves of immigrants - different cohorts - had different skill levels, if we don’t recognize the cohort effect we might conclude that recent immigrants will eventually do better than natives. Cohort effects can also arise because as time goes on those immigrants who do not do that well may return to their country. Those leaving means the average income of those who stay will rise. Then when compared to more recent arrivals that include unsuccessful ones bringing their average down, the older ones appear really good. Around 1965 there was a change in immigration policy in the US from one of skill based immigration to one based on family ties. This, in part, may be why more recent immigrants have been less skilled.
The Roy Model Folks from a source country are deciding about coming to the US. Earnings in both countries depend only on skills that are completely transferable across countries. Let s denote the efficiency units embodied in a worker. frequency Here we have an example of a frequency distribution of workers with skills in a source country. s sn sp
$ US The wage-skills graph for US and a source country. Here we study self-selection. source country don’t go go to US sp s When high skills get paid more in the US than the source country the high skilled workers in the source country will come to the US. We get the brain drain from other countries. This is called a positive selection bias and we get the high skilled folks from other countries. Notice the source country wage-skill line is flat suggesting income doesn’t change much with more skills. Countries in Europe have high taxes on the high end and income maintenance on the low end and thus the high skills people are likely to leave the source country.
source country Read this last - if income in the US falls, for example, the US line falls and we get less immigration - less of skilled and unnskilled. $ US go to US don’t go sn s When low skills get paid more in the US than the source country the low skilled workers in the source country will come to the US. This is called a negative selection bias and we get the low skilled folks from other countries. Notice the source country wage-skill line is steep suggesting income changes a lot with more skills. Countries like Mexico and other Latin American countries have widely varying incomes and thus the high skills people are likely to stay and enjoy the high wages at home while the low skill leave the source country for better wages.
