CReAM Brown Bag seminar presented by Eran Yashiv (Tel Aviv University)

Abstract: When a worker moves from a poor to a rich economy, what is gained by the move? The paper addresses this question using a self- selection model that caters for two empirically-important sets of features. First, it encompasses notable facts concerning rich and poor countries income differences, recently characterized by the development accounting literature. Second, the model explicitly recognizes that movers and stayers face different job tasks requirements and different rewards for their skills in performing these tasks. The paper makes use of a unique data set on Palestinian workers, working locally and in Israel, that allows to isolate the pure effects of income differences with no confounding factors, while encompassing the constraints placed on movers in terms of the human capital skills required. The findings show that income differences affecting the choice to move to a rich economy are made up of elements, which operate in opposition. Productivity differences in favor of the richer economy, due to differences in TFP and in physical capital, are sizeable and operate to raise wages for movers. Lower returns to human capital and lower stocks of human capital, however, operate to lower wages for movers. This is due to negative selection on observables, with movers being offered low-skill tasks in the rich economy. The latter effect off- sets, to a large or full extent, the former gain.

Paper available

here.

here.