The internal relocation premium: are migrants positively or negatively selected? Evidence from Italy

This paper analyzes the wage returns from internal migration for recent graduates in Italy. We employ a switching regression model that accounts for the endogeneity of the individual’s choice to relocate to get a job after graduation: the omission of this selection decision can lead to biased estimates, as there is potential correlation between earnings and unobserved traits, exerting an influence on the decision to migrate. The empirical results sustain the appropriateness of the estimation technique and show that there is a significant pay gap between migrants and non-migrants; migrants seem to be positively selected and the migration premium is downward biased through OLS estimates. The endogeneity of migration shows up both as a negative intercept effect and as a positive slope effect, the second being larger than the first: bad knowledge of the local labor market and financial constraints lead migrants to accept a low basic wage but, due to relevant returns to their characteristics, they finally obtain a higher wage than the others.