Hidden Income and the Perceived Returns to Migration

Abstract

In many developing economies, urban workers earn substantially more than rural workers with the same level of education. Why don’t more rural workers migrate to cities? I use two field experiments in Kenya to show that low migration is partly due to underestimation of urban incomes, which is sustained by income hiding by migrants. Parents at the origin underestimate their migrant children’s incomes by nearly half, and underestimation is greater when a migrant’s remittance obligations are high. Providing information about urban earnings increases migration to the capital city by about 40% over two years.

Keywords: migration, hidden income, urban-rural income gap

JEL Classification: J61, R12, R23, O15, D82, D83, D84