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

Abstract

Why are highly skilled workers more responsive than other workers to productivity differentials when taking migration decisions? Why do low-skilled workers abandon rich regions? This paper aims to answer these questions using skill complementarities and endogenous price differentials between rich and poor regions. If the skill premium is increasing in the average level of human capital of a location, the more skilled the workers are, the stronger the economic incentives to migrate to the rich regions become. In contrast, the low-skilled workers have an incentive to migrate to the poor regions to minimize their living costs.

Keywords: internal migration, regional disparities, living costs, housing prices

JEL Classification: R1, O11, O15, O18