Bureau of Business Research
Date of this Version
Business in Nebraska, June 2012, (67)702: 7 pages
REAL IMPACT OF MIGRATION
In response to economic shocks, such as the Great Recession, people seek out opportunities to return to normalcy. One way is to relocate to a new area. This study examines the people who move from one state to another, seeking better opportunities, and in the process, aiding to rebuild the U.S. economy.
This study does not simply count the number of mi-grants, it also examines the attributes of migrants to determine the human capital, or productive skills, they possess and are willing to provide to the market. Each person, due to characteristics such as education and work experience, has a different level of skill. While there is no way to identify exactly how much human capital a person possesses since no person is the same as another, these characteristics heavily influence the human capital stock of individuals. To develop a comprehensive measure of human capital stock, this study considers an array of characteristics which influence human capital stocks, including education attainment, work experience, health, and other variables such as marital status which can influence the opportunity and pres-sure individuals face to accumulate human capital.
The next section describes the Model and Data Sources for the study. The third section provides Results. The Results section is separated into Regional Comparison, to examine the U.S. as a whole, and States Surrounding Nebraska, for a more local perspective. The fourth and last section is the Conclusion.
Model and Data
In 1974, Economist Jacob Mincer formulated an equation linking human capital and wages. In that equation, the hourly wage rate was modeled as the returns to human capital. Specifically, the natural logarithm of hourly wages was a function of individual characteristics that determine human capital as in the equation below:
lhourlywage = β0 + β1Edu + β2Exp + β3Sex + β4Race + β5Mar + β6Union + β7Dis + ε.
In the equation, lhourlywage is natural logarithm of an individual’s hourly wage, Edu is level of eduction attainment, Exp is work experience, Sex is gender, Race is ethnicity, Mar is marital status, Union is union affiliation, Dis is disability status, and ε is the error term. The intercept term, β0, shows the ex-tent to which hourly wages resulted from the characteristic of their local economy, such as the amount of machinery and equipment per worker, or the amount of roads or other public capital per worker. Other coefficients (β1-β7) show the influence of human capital characteristics on hourly wages.
In this study, we estimate the above equation and use the results to predict the human capital of state-to-state migrants. More precisely, estimation results are used to determine the hourly returns to each mi-grant’s human capital. These hourly returns are converted to “full time equivalent” annual returns based on a 2,000 hour work year. Each migrant’s current returns to human capital are assumed to persist in real (inflation adjusted) terms. Annual returns are then used to calculate the lifetime value of each migrant’s human capital stock. This is done in the same way that annual profits are used to estimate the value of a company’s stock. In particular, the the present discounted value of future annual returns to human capital are used to estimate the mi-grant’s human capital stock.
Nebraska and Michigan
States Surrounding Nebraska
Copyright 2012 by Bureau of Business Research