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The Aggregate Productivity Effects of Internal Migration: Evidence from Indonesia

May 2018
Stanford King Center on Global Development Working Paper
By  Gharad Bryan, Melanie Morten

We estimate the aggregate productivity gains from reducing barriers to internal labor migration in Indonesia, accounting for worker selection and spatial differences in human capital. We distinguish between movement costs, which mean workers will only move if they expect higher wages, and amenity differences, which mean some locations must pay more to attract workers. We find modest but important aggregate impacts. We estimate a 22% increase in labor productivity from removing all barriers. Reducing migration costs to the U.S. level, a high-mobility benchmark, leads to a 7.1% productivity boost. These figures hide substantial heterogeneity. The origin population that benefits most sees an 104% increase in average earnings from a complete barrier removal, or a 25% gain from moving to the U.S. benchmark. 

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