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Abstract

While higher wages at home reduce the incentive to emigrate by increasing the opportunity cost of working abroad, they also facilitate emigration for liquidity-constrained individuals. Our theoretical model examines the interaction between these two effects. We show that (i) the relationship between the home-country wage and emigration pressure is hump-shaped, (ii) the hump is more pronounced the lower the cost of migration, and (iii) the ratio of high to low-skilled emigrants is decreasing in the home-country wage. We test our model empirically for three different skill groups of emigrants and find strong evidence in support of the three hypotheses. The peak emigration rate for the low skilled is estimated at 4000 dollars at 2000 PPP-adjusted prices. A rise in the annual per-capita income of the source country from 231 dollars of the poorest economy in our sample to 4000 dollars, is associated with an increase in the emigration rate of its low-skilled workers from about 2.7% to 5.0%.

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