Household constraints and dysfunctional rural–urban migration

This paper aims to explain why over the past two decades in Chile internal rural–urban migration has not worked as an effective equalizing mechanism for territorial income disparities. In view of this aim, we investigate how labor market incentives and non-market barriers structurally affect migration. Based on national household surveys, our empirical strategy controls for the self-selection of working migrants, allowing the estimation of a non-endogenous earnings differential while relying on a consistent poverty identification at the origin. On the one hand, our results show that earning differentials observed by potential working migrants encourage migration. However, on the other hand, the household-level constraints of the potential working migrant, such as stayers’ welfare, might work as a pull or push factor. Thus, we are in the presence of a market failure in which migrants are not strictly those who could profit most from labor market differentials but rather those who are not constrained by poverty and the low human capital of their families. Consequently, this market failure explains the ineffectiveness of migrations as an welfare-equalizing mechanism, shedding light on the type of public policies needed to achieve more functional migration flows.