Migration Costs and Human Capital Investments

Abstract

This paper considers the effects of migration costs on human capital investments. We argue that migration costs hurt high-skilled workers relatively more than low-skilled workers. High-skilled workers often have specific skills that oblige them to consider a wider market than low-skilled workers. In such a context, migration costs discourage investments in tertiary education. However, human capital investments include other types of investment, namely on-the-job specific training provided by firms. We show that migration costs have exactly the opposite effect on this type of investment. Migration costs increase the probability of continuing the relationship after a probation period and therefore stimulate firm-specific training. The overall effect on welfare depends among others on the respective productivities of each investment.

Keywords: Migration costs, human capital, matching

JEL Classification: J61, J63, I20