Lecture 11 - Migration, Self-Selection and Assimilation
1. Migration from an Immigrant’s Perspective
This lecture analyses migration using microeconomic tools. The core structure is built around three questions:
- Why do people migrate?
- Who chooses to migrate? (self-selection)
- What happens after arrival? (assimilation)
Migration is modelled as a choice under constraints, where individuals or households compare expected benefits and costs.
2. The Basic Economic Model of Migration
Migration decision rule
An individual migrates if the expected benefits exceed expected costs:
Where:
This is a rational choice framework grounded in expected utility maximisation.
Interpretation
- Migration is forward-looking.
- It depends on expectations, not just current conditions.
- It incorporates both monetary and non-monetary factors.
Migration is an investment decision. You incur upfront costs today in exchange for a stream of higher expected returns tomorrow.
3. Push and Pull Factors
The benefits and costs embedded in
The slide labelled “Factors” illustrates the immigration decision visually:
The diagram categorises:
Source Country
- Push factors: poverty, low wages, unemployment, conflict.
- Stay factors: family ties, familiarity, social networks.
Destination Country
- Pull factors: high wages, employment, freedom, stability.
- Stay-away factors: discrimination, language barriers, low status.
Costs of Moving
- Transport costs
- Lost income during transition
- Risk and uncertainty
- Formal exit and entry barriers
Interpretation of the Diagram
The figure makes clear that migration is not simply about wage differences. It is a comparison of:
- Origin utility
- Destination utility
- Transition costs
The presence of formal exit and entry barriers highlights that migration is also shaped by institutions and policy.
Migration is shaped by state policy via quotas, visas and taxation. These affect
Policy can therefore distort or redirect self-selection.
If asked about migration drivers, always distinguish:
- Push vs pull
- Economic vs non-economic motives
- Individual vs institutional constraints
4. Economic Incentives and Wage Differentials
John Hicks argued:
Differences in net economic advantages, chiefly differences in wages, are the main causes of migration.
Consider two countries:
- Origin:
- Destination:
Migration occurs if:
Core Prediction
Higher expected wage gap → higher probability of migration
However, employment is uncertain. So we incorporate employment probabilities:
Where:
Migration depends on expected earnings, not posted wages.
Age and Lifetime Gains
If an individual is age
Younger individuals have:
- More years to benefit
- Larger cumulative wage gains
- Higher likelihood of migration
Migration is like buying an asset. The younger you are, the longer you can earn returns.
Who is most likely to migrate?
- Younger individuals
- Those with large expected wage gaps
- Those with higher employment probabilities abroad
5. Household Decision-Making
Migration is often a household-level decision, not individual.
Let household
Even if one member loses from migration individually, the household may still migrate if the total is positive.
The following slide visualises this:
Interpretation of Regions
- Region A: Both gain → migrate.
- Region D: Both lose → stay.
- Region B/F: One loses individually but household migrates.
- Region C/E: One gains individually but household stays.
Why This Matters
Migration involves:
- Joint utility
- Bargaining power
- Intra-household trade-offs
This introduces collective decision-making. Migration outcomes depend on household bargaining models, not just individual optimisation.
Do not assume migration decisions are always individually optimal. They may reflect household maximisation.
6. Self-Selection and the Roy Model
The simple wage gap model ignores heterogeneity in skills.
Enter the Roy model.
Core Idea
Wages depend on skill
Countries differ in the return to skill:
- Flat wage-skill profile → more equality
- Steep wage-skill profile → more inequality
The slide below illustrates this:
Panel A: Positive Selection
Destination has steeper wage-skill profile.
- High-skill workers gain more.
- Skilled workers migrate.
- Migrants are positively selected.
Panel B: Negative Selection
Destination has flatter wage-skill profile.
- Low-skill workers benefit.
- Migrants are negatively selected.
Positive selection: migrants are above-average skilled relative to origin.
Negative selection: migrants are below-average skilled relative to origin.
Policy Implications
Tax and transfer systems affect wage dispersion.
- Progressive taxation → flatter net wage profile.
- Low progressivity → steeper profile.
Thus:
Tax policy → wage inequality → migration selection pattern
If asked why migrants differ across destinations, link:
- Wage inequality
- Returns to skill
- Tax structure
- Roy self-selection
7. Assimilation
Migration does not end at arrival. The next question is:
Do immigrant wages converge to native wages?
We focus on economic assimilation, particularly wage convergence.
Assimilation is broader and may include:
- Language acquisition
- Cultural integration
- Residential patterns
- Social mobility
8. Measuring Wage Assimilation
Empirical model:
Where:
Interpretation of Coefficients
Empirical findings:
Most studies find negative initial gaps (
Immigrants start behind but partially catch up.
Initial wage gaps may reflect:
- Source-country-specific human capital
- Credential recognition issues
- Language deficits
- Discrimination
Over time, migrants accumulate host-country-specific human capital, improving wages.
9. Cohort Effects
A major identification problem:
Later migrant cohorts may differ in skill from earlier cohorts.
Observed wage growth may reflect cohort quality differences, not assimilation.
Solution:
Where
This controls for time-invariant characteristics.
Do not interpret
10. Integrated Conceptual Framework
Migration economics combines:
- Rational choice
- Labour market theory
- Inequality and redistribution
- Human capital theory
- Econometric identification
It links micro-level decisions to macro-level demographic change.
Overall Key Takeaways
- Migration is an expected cost-benefit decision.
- Wage gaps and employment probabilities are central.
- Younger individuals migrate more due to lifetime returns.
- Household decision-making complicates individual incentives.
- The Roy model explains skill self-selection.
- Wage inequality influences migration patterns.
- Assimilation is measured econometrically.
- Cohort effects complicate interpretation.
Bibliography
Bodvarsson, Ö.B. and Van den Berg, H. (2013) The Economics of Immigration: Theory and Policy. 2nd edn. New York: Springer.
Hicks, J.R. (1932) The Theory of Wages. London: Macmillan.
Roy, A.D. (1951) ‘Some Thoughts on the Distribution of Earnings’, Oxford Economic Papers, 3(2), pp. 135–146.
University of Nottingham (2026) ECON1016 Current Economic Issues – Lecture 3 Slides.