Social networks and earnings differential of internal migrants in Indonesia: a switching regression

Abstract

This study examines the earnings differential between users and non-users of networks of Indonesian internal migrants. By exploiting the Indonesian Family Life Survey wave 5, we employ endogenous switching regression to handle the self-selection bias in the model. We find evidence that the inherent characteristics of the migrants create a tremendous earnings gap between the two agents. Users of networks experience a wage penalty compared to non-users of network. We also find that education has a dominant impact on increasing the earnings discrepancy for migrants. These suggest that network users find it difficult to catch up on the earnings of their non-user counterparts. In addition, the study reveals that networks are not necessarily the only influencing factor of earnings differential. Moreover, the study specifically suggests that hiring channel through networks supports migrants in securing employment. However, the low education levels of the migrants restrict them from enjoying higher earnings.