Migration and Economic Prospects

Abstract

Uncertainty and risk perceptions are important elements in the decision-making process about migration. This study outlines a ‘migration prospect theory’, which aims to explain rather short-term fluctuations of migration flows as a consequence of expectation-based adjustment about future economic prospects. I argue that individuals with migration intentions continuously assess general economic prospects, including the labour market situation, at home and abroad in order to form reference points and updates for their migration-related expectations. Consequently, deviations from reference points generate expectation-based utility gains or losses for potential migrants, which affect the value of the migration option. This can lead to a cancellation or procrastination of the individual migration project. Based on an analysis of intra-European migration inflows to Germany between 2001 and 2010, supportive empirical evidence about some key implications of this migration prospect theory is found: first, migration flows respond more strongly to negative than to equal-sized positive economic prospects, indicating loss aversion of potential migrants; second, expectation-based prospects about the future economic situations in the home and potential destination country can both counterbalance or reinforce structural economic incentives based on real economic aggregates and third, migration flows show a diminishing sensitivity for larger fluctuations in expectation-based adjustments of economic prospects.