A simultaneous probit model of earnings, migration, job change with wage heterogeneity

Abstract.

In this study, earnings are decomposed in order to measure the effects due to individual characteristics and to unobserved heterogeneity. These effects are shown to work in opposite directions, complicating the effect of earnings on migration. The use of aggregate earnings masks the two separate effects. Those earning more because of productive characteristics are less likely to move. However, higher earnings due to other reasons that are more qualitative act as an impetus for migration. Job change is often part of the decision to migrate. In our analysis we recognize the endogeneity of job change in the migration equation and estimate it separately in the model. Job change is found to have a significantly positive influence on migration. Moreover, the separate estimation of job change brings out the important role of both explained and unexplained earnings on the decision to switch jobs, both factors decreasing the perceived necessity of changing jobs.