Self-Selection and the Returns to Geographic Mobility: What Can Be Learned from the German Reunification 'Experiment'

Abstract

This paper investigates the causal effect of geographic labour mobility on income. The returns to German East-West migration and commuting are estimated exploiting the structure of centrally planned economies and a natural experiment of German reunification for identification. I find that migration premium is insignificantly different from zero, the returns for commuters equal to four percent of the mean of the total income, and the local average treatment effects for compliers are insignificant. In addition, estimation results suggest no positive selection on unobservables for migrants, and some evidence of positive self-selection for commuters. Based on these results, moving West does not appear to be a highly rewarded option in Germany.