0.

1 Grogger and Hanson (2008)

Model setup:

Let the wage for worker i with skill level j from country s in destination
j
h be Wish = exp(µh + δh2 Dis
2 + δ 3 D 3 ) where exp(µ ) is the wage for workers
h is h

with primary education, and δhj is the return to secondary (2) and tertiary
j
(3) education with Dis = 1 being indicators for i from s having schooling
j 1 D 1 + g 2 D 2 + g 3 D 3 where
j. The cost of migrating is Cish = fsh + gsh i sh i sh i

fsh is the fixed cost of moving and the g terms are variable costs. Utility
j j j
is then given by Uish = α(Wih − Cish + εjish . McFadden’s results then im-

ply that the log odds of migrating to destination h versus staying in s are
j
Esh
ln = α(Whj − Wsj ) − αfsh − αgsh
j
(scale) given the usual IIA assumption
Esj
j
where Esh is the population share of j in s that migrates to h, Esj is the

share remaining in s, and Whj = exp(µh + δhj ).

Selection comes in by differencing between tertiary- and primary-educated

E3 Es 3
3 3 3 1 1 1
1 − ln E 1 = α[(Wh − Ws − gsh ) − (Wh − Ws − gsh )] (selection).
workers: ln Esh
sh s

This equation implies: (i) negative (positive) selection if the LHS is nega-

tive (positive); (ii) positive selection if wage difference between source and

destination, net of varying migration costs, is higher for high-skill workers.

3 E3
1 = α(Wh −
Sorting comes in by examining terms that vary by s: ln Esh
sh
Es3
Wh1 ) − α(gsh
3 1 )+τ ,
− gsh s where τs = ln Es1
− α(Ws3 − Ws1 ) (sorting). Sorting

occurs across destination in response to skill-related wage differences.

1
 Prior literature due to Borjas largely estimates log utility models with

proportional rather than additive error terms and migration costs (hence
j j j j
focusing on relative returns: Uish = (Wish − Cish )λ exp(νish ) delivering anal-

ogous equations for scale, selection and sorting:

j
Esh
• (scale): ln = λ(ln Whj − ln Wsj ) − λmjsh where mjsh = (fsh −
Esj
j
αgsh )/Whj

E3 Es 3
3
1 3 1
• (selection): ln Esh
1 − ln E 1 = λ(δh − δh ) − λ(msh − msh )
sh s

3
Esh
• (sorting): ln 1
Esh
= λδh3 − λ(m3sh − m1sh ) + ρs where ρs = ln(Es3 /Es1 ) −

λδs3 ,

Above equations use approx. ln(W − C) ≈ ln W − C/W for small C/W

and ln Wh3 − ln Wh1 = δh3

Implication: log utility does not eliminate migration costs from sorting

and selection. Using exp(δ)−1 ≈ δ, linear utility implies negative selection if

 −1 
Wh1 3

δs3 gsh 3 = 0 (fixed migration costs independent
δ3
> W 1 1 + W 3 −W 1 . If gsh
h s s s

of skill), then negative selection if δs3 /δh3 >= Wh1 /Ws1 whereas log utility

with zero fixed costs and skill-varying costs proportional to wages implies

negative selection if δs3 /δh3 > 1.

Selection and sorting are independent! Sorting between h and k depends

on ∆hk = [Wh3 − Wh1 − (gsh

3 − g 1 )] − [W 3 − W 1 − (g 3 − g 1 )] while selection
sh k k sk sk

depends on ∆h = (Wh3 − Ws3 − gsh

3 ) − (W 1 − W 1 − g 1 ). h could receive more
h s sh

2
skilled migrants than k so long as ∆hk > 0 regardless of selection in either

country.

0.2 Dahl (2002)

Population earnings function for individual i in state k = 1, . . . , N is yik =

αk + x0i δk + si βk + uik where si is schooling. The utility framework is

Vijk = yik + tijk where utility of i born in j considering move to k con-

sists of log earnings and a taste-factor. Then, yik − E[yik |xi , si ] = uik

and tijk − E[tijk |zi ] = wijk where zi is a vector of individual characteris-

tics. Rewriting Vijk = Vjk + eijk where Vjk = E[yik |xi , si ] + E[tijk |zi ] and

eijk = uik + wijk .

Individuals follow optimal migration path such that move from j to k,

Mijk = 1, iff Vijk = maxn Vijn (selection) or Vjk + eijk ≥ Vjm + eijm ∀m.

Earnings yik are observed iff all N selection equations are satisfied simulta-

neously. In general, E[uik |yik observed] = E[uik |Mijk = 1] = E[eijm − eijk ≤

Vjk − Vjm , ∀m] 6= 0, the selectivity bias for i, which depends on correlation

of residual earnings across areas and relationship between residual earnings

and residual tastes. Compared to two-market Roy model, selection is much

more complicated because eij1 , . . . , eijN vary across individuals observed in

k and born in j. Thus, the dimensionality of the problem is much more

challenging than imposing joint normality in the usual case.

To rectify the problem, use Lee’s (1983) approach that ensures equiva-

lence between (i) yik observed iff (Vj1 − Vjk + eij1 − eijk , . . . , VjN − Vjk +

3
eijN − eijk )0 ≤ 0 and (ii) yik observed iff maxm (Vjm − Vjk + eijm − eijk ≤ 0.

The results imply that


fjk (uik , eij1 −eijk , . . . , eijN −eijk |Vj1 −Vjk , . . . , VjN −Vjk = gjk uik , max(Vjm − Vjk + eijm − eijk )|Vj1 − V
m
(1)

reducing from N −variate joint distribution to bivariate.

Dahl then uses the migration probabilities as sufficient statistics. Rewrit-

ing in a multiple-index, partially linear model:

N
X
yik = αk + x0i δk + si βk + [Mijk × ψjk (Vj1 − Vjk , . . . , VjN − Vjk )] + ηik (2)
i=1

where ψjk (·) = E[uik |Vj1 − Vjk , . . . , VjN − Vjk ]. The key single index suffi-

ciency condition is:

  
gjk uik max(Vjm − Vjk + eijm − eijk )|Vj1 − Vjk , . . . , VjN − Vjk = gjk uik max(Vjm − Vjk + eijm − eij
m m
(3)

where pijk is the probability that i moves from j to k. Hence, the dimen-

sionality reduces again to

N
X
yik = αk + x0i δk + si βk + [Mijk × λjk (pijk )] + ωik (4)
i=1

where λjk is the selection correction for state k or a multiple-index repre-

4
sentation works as well:

N
X
yik = αk + x0i δk + si βk + [Mijk × λjk (pij1 , . . . , pijN )] + ωik (5)
i=1

BKT criticize the above approach as not being grounded in utility max-

imization.

0.3 Bayer, Khan and Timmins (2008)

0.4 Heckman and Honoré (1990)

0.5 Heckman and Vytlacil (2008)

References

Abadie, Alberto, (2005), “Semiparametric differences-in-differences estima-

tors,” Review of Economic Studies 72 (1), 1-19.