Why Doesn't Labor Flow from Poor to Rich Countries? Micro Evidence from the European Integration Experience

Joining the EU is a natural experiment that drastically opens the borders of richer European countries to immigration.  However, migration flows from southern Europe responded little to  free migration after 1986, despite substantial differentials in real GDP per worker.  The simple explanation we propose for this puzzle is migration costs.  We explore the implications of our costly migration model by combining individual information from two household survey datasets (Luxembourg Income Study and European Community Household Panel).  In estimating wage differentials, we account for observable characteristics, unobservable heterogeneity, and assimilation of immigrants.  Based on our theoretical framework, we identify individual migration costs: they seem to be smaller for the young and educated.  Nevertheless, we find a negative pattern of self-selection: less able workers appear to be more likely to leave.  Our results point to the importance of micro characteristics of potential migrants in determining the effectiveness of free migration policies.