MIGRATION AND MARKET WAGE RISK

This paper departs from the human capital tradition in the migration literature by formalizing the market-specific information contained in wages along the lines suggested by Phelps's (1969) ''island parable'' of search. It allows us to incorporate the role of market wage variability as a source of information in individual migration decisions. Essentially wages are assumed to vary due to two types of sources: local and national. Individuals observe their current market wage but are uncertain about the source of variation in their wage level. An integral part of the expected utility comparison that migrants make then is evaluating the information content of their current market wage; how much of it is local and how much of it is common with other markets? Given this evaluation, what can they expect of wages at alternative markets; how precise is their expectation? A linear approximation to the expected utility comparison that migrants make is used to formulate a probit specification of the move or stay decision conditional on origin market and individual characteristics. The focus here is on quantifying the effects of the origin market and individual characteristics. The focus here is on quantifying the effects of the origin market acting through amenities and the share of market-specific wage variability as it affects forecasts of alternative wages and forecast precision. A subsample of employed males, not in school or in the military, from the National Longitudinal Survey of Youth (NLS) age 16 to 22 years is used for estimation. The empirical results are consistent with the theoretically predicted relationship between migration propensities and regional differences in the information content of wages. In addition, the results provide evidence that risk aversion deters migration given uncertainty, measured by forecast precision, about alternative market wage levels.