The Place Premium: Wage Differences for Identical Workers Across the US Border

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The Place Premium: Wage Differences for Identical Workers Across the US Border

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Title: The Place Premium: Wage Differences for Identical Workers Across the US Border
Author: Clemens, Michael A.; Montenegro, Claudio E.; Pritchett, Lant

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Citation: Clemens, Michael, Claudio Montenegro, and Lant Pritchett. 2009. The place premium: wage differences for identical workers across the US border." HKS Faculty Research Working Paper Series RWP09-004, John F. Kennedy School of Government, Harvard University.
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Abstract: We estimate the “place premium”—the wage gain that accrues to foreign workers who arrive to work in the United States. First, we estimate the predicted, purchasing-power adjusted wages of people inside and outside the United States who are otherwise observably identical—with the same country of birth, country of education, years of education, work experience, sex, and rural or urban residence. We use new and uniquely rich micro-data on the wages and characteristics of over two million individual formal-sector wage-earners in 43 countries (including the US). Second, we examine the extent to which these wage ratios for observably equivalent workers may overstate the gains to a marginal mover because movers may be positively selected on unobservable productivity in their home country. New evidence for nine of the countries, combined with a range of existing evidence, suggests that this overstatement can be significant, but is typically modest in magnitude. Third, we estimate the degree to which policy barriers to labor movement in and of themselves sustain the place premium, by bounding the premium observed under self-selected migration alone. Finally, we show that the policy-induced portion of the place premium in wages represents one of the largest remaining price distortions in any global market; is much larger than wage discrimination in spatially integrated markets; and makes labor mobility capable of reducing households’ poverty at the margin by much more than any known in situ intervention.
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