A Land of Milk and Honey with Streets Paved with Gold: Do Emigrants have Over-Optimistic Expectations about Incomes Abroad?

42 Pages Posted: 20 Apr 2016  

David J. McKenzie

World Bank - Development Research Group (DECRG); IZA Institute of Labor Economics

John Gibson

University of Waikato; Motu Economic and Public Policy Research

Steven Stillman

Free University of Bozen-Bolzano; IZA Institute of Labor Economics

Date Written: May 2007

Abstract

Millions of people emigrate every year in search of better economic and social opportunities. Anecdotal evidence suggests that emigrants may have over-optimistic expectations about the incomes they can earn abroad, resulting in excessive migration pressure, and in disappointment among those who do migrate. Yet there is almost no statistical evidence on how accurately these emigrants predict the incomes that they will earn working abroad. In this paper the authors combine a natural emigration experiment with unique survey data on would-be emigrants' probabilistic expectations about employment and incomes in the migration destination. Their procedure enables them to obtain moments and quantiles of the subjective distribution of expected earnings in the destination country. The authors find a significant underestimation of both unconditional and conditional labor earnings at all points in the distribution. This underestimation appears driven in part by potential migrants placing too much weight on the negative employment experiences of some migrants, and by inaccurate information flows from extended family, who may be trying to moderate remittance demands by understating incomes.

Keywords: Population Policies, Economic Theory & Research, Remittances, Labor Markets, Fiscal & Monetary Policy

Suggested Citation

McKenzie, David J. and Gibson, John and Stillman, Steven, A Land of Milk and Honey with Streets Paved with Gold: Do Emigrants have Over-Optimistic Expectations about Incomes Abroad? (May 2007). World Bank Policy Research Working Paper No. 4141; IZA Discussion Paper No. 2788. Available at SSRN: https://ssrn.com/abstract=964803

David John McKenzie (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

John Gibson

University of Waikato ( email )

Te Raupapa
Private Bag 3105
Hamilton, 3240
New Zealand

Motu Economic and Public Policy Research

19 Milne Terrace
Island Bay
Wellington, 6002
New Zealand

Steven Stillman

Free University of Bozen-Bolzano ( email )

Via Sernesi 1
39100 Bozen-Bolzano (BZ), Bozen 39100
Italy

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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