Working Paper: NBER ID: w23540
Authors: Gharad Bryan; Melanie Morten
Abstract: We estimate the aggregate productivity gains from reducing barriers to internal labor migration in Indonesia, accounting for worker selection and spatial differences in human capital. We distinguish between movement costs, which mean workers will only move if they expect higher wages, and amenity differences, which mean some locations must pay more to attract workers. We find modest but important aggregate impacts. We estimate a 22% increase in labor productivity from removing all barriers. Reducing migration costs to the US level, a high mobility benchmark, leads to an 8% productivity boost. These figures hides substantial heterogeneity. The origin population that benefits most sees an 104% increase in average earnings from a complete barrier removal, or a 37% increase from moving to the US benchmark.
Keywords: internal migration; productivity; Indonesia; labor economics
JEL Codes: J61; O18; O53; R12; R23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Reducing barriers to internal migration in Indonesia (R23) | Increase in aggregate labor productivity (O49) |
| High mobility benchmark (J62) | Increase in productivity (O49) |
| Complete barrier removal (Y50) | Increase in average earnings for origin populations (J39) |
| Moving to the US benchmark (F29) | Increase in average earnings for origin populations (J39) |
| Doubling of the share of migrants from an origin to a destination (F22) | Decrease in average wages at that destination (J31) |