NETWORKS IN THE MODERN

ECONOMY: MEXICAN MIGRANTS IN

THE U.S. LABOR MARKET

Kaivan Munshi
 INTRODUCTION

• The prevalence of non-market institutions may be more

prevalent in developing countries, where market imperfections
tend to be more severe and pervasive, a strong implication of
this view is that these institutions should also be observes in
those sectors of the economy in which markets function
imperfectly. This paper attempts to identify the effect of
networks among Mexican migrants in the US labor market.
There are several networks among immigrants in the US. The
networks help the information problem from both sides,
workers and companies hiring.
 STORY

• There is an imperfection in the labor market in the US that is

filled by migrants from all over the world. Most migrants tend
to cluster in certain regions and are able to create networks
that help both the new migrants and the hirers. The networks
have an impact un unemployment rates of migrants and also
the wages they get, referrals for non-agricultural jobs.
 DATA

• Mexican Migration Program:

• A small number of mexican communities is surveyed every
year. (Only once)
• They get data from the past 15 years (recall bias) from 200
randomly sampled household heads
• They obtain information about recurrences in travelling to the
US, years worked abroad, among others.
 ORIGIN COMMUNITY

• They have data of 24 communities in 7 states: Jalisco,

Guanajuato, San Luis Potosi, Michoacan, Zacatecas, Nayarit
and Colima. The unit of measurement used is person-year.
• Communities are, on average, dependent on agriculture or
manual skill labor
• People migrate to US on average for 3-4 years
• They come back to their hometown for Christmas (some, not
all)
 DESTINATION

• California, Texas, Boston, and others

• Agricultural jobs and low skilled manual labor available
• Seasonal Jobs
• There appears to be clusters of people from each different
community that are large.
• Migrants seem to take advantage of the multiple networks, not
all returning migrants go back to the same destination. (3)
 INSTRUMENTAL VARIABLE

• Rainfall:
• The major source of income in the origin communities is ”rain-
fed” agriculture
• The origin and destination are in different geographical
regions.
• The correlation between rainfall in origin and destination is 0.1
• Rainfall data is obtained
• Rainfall only affects employment in the US through the size
and the “vintage” of the network
• Lags of rainfall data are used
 INSTRUMENTAL VARIABLE

• There is a negative correlation between rainfall and

employment in the US.
• The lag of 4 years is when we start seeing an effects on
employment in the US
 NETWORK

• The ”older” the participants of the network are, the better

their impact on the network.
• Older participants are better connected. Supply better referrals
plus aid.
• “Paisanos” help each other
• Less skilled workers reap the benefits of the network
• Older workers help solve the asymmetric information problem
for the companies.
 REGRESSION

• Individual fixed efects

• IV rainfall with lags
 RESULTS

• Unemployment rates among migrants are quite low 4%

• Without networks (estimate) 11%
• Non-agricultutal with network 51%
• Non-agricultural jobs without network 38%
 PROBLEMS

• the results lack generalizability because the data came from a

nonrandom cross-section of communities located in only 7
States
• “Do Rainfall Deficits Predict U.S.-bound Migration from Rural
Mexico? Evidence from the Mexican Census” Nawrotzki,
Riosmena, and Hunter