Based on migration of university graduates between regional labour markets in Sweden, this paper shows that upward migration in the regional hierarchy is associated with economically significant earnings premiums. In-migration to the Stockholm region yields the highest initial earnings premium and the largest increase in the premium over time. Downward migration is generally associated with negative effects on earnings.
We use Swedish longitudinal population register data on university graduates and estimate the effect of migration between regional labour markets on earnings. Heterogeneity in effects is examined by origin-destination size categories of regional labour markets, and by individuals’ position in the ability distribution.
The results indicate that the effect of upward migration (from smaller to larger labour markets) on earnings is positive throughout. Downward migration (from larger to smaller labour markets) is generally associated with negative or no convincing signs of positive effects on earnings. The estimates indicate positive short-term urban wage premiums (UWP) for all origindestination flows of upward migration, especially high UWP for in-migration to Stockholm labour market region. The urban wage premium of upward migration is positive also for movers in the lower end of the ability distribution, but it is substantially higher for high ability migrants.
We also find evidence of a positive dynamic UWP of migration to Stockholm from the other regions, particularly for high ability migrants. Labour market related migration is mostly undertaken by young workers. Given the young population under study, we consider the commonly used individual fixed-effect estimator as less feasible for identification of treatment effects on the treated.
Our preferred estimator is propensity score matching. Relatively to previous research, our empirical strategy is based on less parametric and functional form assumptions, we do not condition samples on labor market outcomes. Moreover, we do not condition estimates on post-migration events.