Labor Migration and Wage Growth in Malaysia

I estimate a discrete choice dynamic programming model to calculate how wage differentials affected internal migration decisions in Malaysia between 1978 and 1988. In the model, individuals pick a location at each point in time, thereby allowing for repeat and return migration. I calculate total income in a location as wages plus in-kind payments. I find evidence that wages motivate migration decisions; however, I do not find evidence that in-kind payments play a role. As a person’s wage decreases, his likelihood of migration increases. People move from low to high wage locations, and people with a low wage draw in their current location are more likely to move. People prefer to live in their home location. In Malaysia at this time, there were significant urban-rural and regional earnings disparities. If people move to take advantage of higher earnings, there will be substantial wage growth through migration. I find that migration increases earnings over the course of a lifetime by about 10%.