The Aggregate Productivity Effects of Internal Migration: Evidence from Indonesia

Gharad Bryan, Melanie Morten

NBER Working Paper No. 23540
Issued in June 2017
NBER Program(s):Development Economics

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.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w23540

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