On the Mechanics of Migration Decisions: Skill Complementarities and Price Differentials

Abstract

Why are skilled workers more mobile than average? What determines positive migration flows toward relatively poorer regions or states of a country? How can one explain the sharp decrease in the mobility rate observed within European countries notwithstanding the persistent regional disparities? This paper aims to answer these questions using skill complementarities and endogenous price differentials between the richest and the poorest regions. If the skill premium is increasing in the average level of human capital of a location and there are differences in the price of non-traded goods, the more skilled the workers are, the stronger are the economic incentives to migrate towards the richest regions. In contrast, the least skilled workers have incentives to migrate to the poorest regions to minimize their living expenditures. In this context, interregional cost of living differentials arise endogenously if the self-selection of migrants affects total factor productivity in the traded good sector, as pointed out by Balassa (1964) and Samuelson (1964). Moreover, if the process of capital accumulation provokes faster convergence in interregional wage differentials than in living costs, convergence in GDP per capita may hinder migration to the richest regions, even if it leaves large regional disparities.