Risk and Migration
Francesco Daveriand Riccardo Faini
The decision of where to seek work is a crucial determinant of the way labour markets function. If workers are attached to their initial location and reluctant to move to alternative locations, the smooth working of the labour market will be imperilled. Relative labour immobility will indeed result either in long unemployment spells if wages are rigid, or in persistent wage and productivity differentials across locations if wages happen to respond to unemployment. In both cases, however, the market outcome will be inefficient.
It would seem, therefore, that labour mobility should be associated with greater economic efficiency. This is not, however, a widely accepted conclusion. In many developing countries, there is a widespread perception that labour mobility is often too high, with massive migrations from rural to urban areas leading to the formation of urban ghettos and of large pools of urban unemployed. Similarly, in an international context, policy-makers in industrial countries appear to be increasingly concerned about what they see as excessive migrations from poorer countries, particularly in the face of growing domestic unemployment.
Both internal and international migrations have been extensively studied in the literature. Models of increasing complexity have been developed to assess the role that wage differentials, risk attitudes and informational asymmetries play in shaping the behaviour of potential migrants. Whereas the seminal work of Harris and Todaro ( 1970) focused on the role of unemployment and wage differentials in determining migrations, more recent research ( Stark 1991) has emphasized the possibility that migrations may occur even when expected returns are the same across locations. In particular, the desire to diversify risk may prompt agents to migrate even when expected wages do not differ. Yet, there have been few attempts in the literature to integrate the various approaches to the migration choice and in____________________