‘To Move or Not to Move?’ How migration across regions generates greater economic benefits

In “The Gift of Moving: Intergenerational Consequences of a Mobility Shock,” Emi Nakamura, Josef Sigurdsson, and Jon Steinsson investigate the long-term benefits of moving to a different region.

For a long time, economists have argued that free trade among countries encourages the movement of resources from regions where they are valued less to regions where they are valued more. For example, if apples are selling at a higher price in the U.S. than in Europe, entrepreneurs sensing an opportunity to make profits would buy apples in Europe and sell them in the U.S. This logic of arbitrage applies not just in the case of ordinary goods but also in the case of labour. People who live in low-wage countries tend to move to countries with higher wages. But such migration does not happen instantaneously. Various frictions can discourage people from moving to a different region even when the geographical differences in wages are much larger than moving costs. These frictions may be due to cultural differences, personal anxieties, barriers to free immigration etc. So, in essence, there is significant scope for the misallocation of labour among various regions in the world.