Human Capital and Migration: a Cautionary Tale

We study the interaction of migration and education decisions, and their effects on labor market outcomes of individuals in sending locations. We consider the possibility that, while the level of human capital affects the migration decisions of an individual (i.e., self-selection of migrants), it is also the case that the possibility of migration itself affects the human capital accumulation decisions of agents. In particular, we first analyze how the migration option can reduce the incentives to accumulate human capital in the context of a simple Roy model with exogenous migration. As we show, even when the return to migrating is positive,if the return to education for migrants is lower in the receiving location than in the sending location, the mere possibility of migrating reduces the returns to human capital accumulation for people in the sending location. We analyze data on rural migration in China, where this pattern of returns seems to hold. We then use diff-in-diff to show that, consistent with our simple model's prediction, educational attainment in rural China slowed down compared to urban regions after an early 80's reform that relaxed the restrictions to rural migration. Finally, we build a structural model of rural-urban migration in China, where we estimate the reduction in migration costs that happened as a consequence of the reform. To quantify the effect of the policy, we simulate what would have happened had the policy not been implemented. We find that the attendance rates for high school, some college and college would have increased by 29%, 141%, and 24%, respectively.