Relative deprivation and migration : theory, evidence, and policy implications

__- -----~--*-*- PLA-)S C) S Policy, Research, and External Affairs WORKING PAPERS E ~~~~FILE COPY Welfare and Human Resources Population and Human Resources Department and Agriculture and Rural Development Department 3 The World Bank Iv April 1991 WPS 656 Relative Deprivation and Migration Theory, Evidence, and Policy Implications Oded Stark and J. Edward Taylor Evidence on migration in Mexico shows that people in house- holds relatively deprived in that village are more likely to migrate abroad than are people in households that are better situated in that village. ITh Policy, Research, and External Affairs Complex distributcs PRE Working Papcrs to disseminare the findings of work in progress and to encourage the exchange of ideas among Bank staff and all othors interested in developnent issues. Thcsc papers carry the names of the authors, reflect only their views, and should be usod and cited accordingly. The findings, interpretations, and conclusions are the authors' own. They should not be attributod to the World Bank, its Board of Directors, its managanent, or any of its member counuios.  Policy, Research, and External Affairs Wlre and Human Resouroes WPS 656 This paper a joint product of the Welfare and Human Resources Division, Population and Human Resources Department and the Agricultural Policies Division, Agriculture and Rural Development Department - is part of a larger effort in PRE to identify factors underlying rural changc and rural economic performance. Copies are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Maria Paz Felix, room S9-109, extension 33724 (42 pages). Stark and Taylor examine the importance of labor markets in which the returns to their human absolute income and relative deprivation incen- capital are likely to be. greatest. The rcsults tives for internal and intemational migration in suggest that a specific type of migration consti- developing country households. tutes a response to a specific conriguration of variables, and the role of relative deprivation Empirical results, based on Mexican villas appears to differ for internal and international data, support the hypothesis that households' migration. relative deprivation in the village reference group is significant in explaining migration by Taking relative deprivation into account household members to destinations where a when studying migration is shown to have reference group substitution is unlikely and the important implications for development policy. returns to migration are high. For example, economic development that does not redress intravillage income inequalities may Independent of relative deprivation, village become associated with more migration. households wisely pair their members with the The PRE Working Paper Series disseminates the findings of work under way in the Bank's Policy, Research, and Extemal AffairsComplex. Anobjectiveof theseries is to get thesefindings out quickly, even ifpresentations are less than fully polished. The findings, interpretations, and conclusions in these papers do not nccessarily represent official Bank policy. Produced by the PRE Dissemination Center  Relative Deprivation and Migratior': Theory, Evidence, and Policy Implications by Oded Stark and J. Edward Taylor Table of Contents I. Absolute and Relative Ilcome Hypotheses of Migration 2 A. A Relative Deprivation Hypothesis 4 B. An Integrated Approach 9 C. Reference Group Substitution, Labor Market Discontinuities, 12 and Destination Choice II. Evidence from Mexico 15 A. Data 15 B. Estimation 18 C. Logit Findings 22 III. Conclusions 27 Appendix 30 Notes 34 Tables 37 References 41  Almost without exception, economic studies of labor migration in less developed countries (LDCs) focus on the potential contributions that migration may make to the absolute in zie of the relevant migration unit (the individual, the fam.Ly, or the household). In contrast, Stark (1984) has hypothesized that rural-to-urban migration might be undertaken primarily to improve an individual's or a household's comparative income position with respect to that of other individuals or households in the relevant reference group (for example, the village). In a recent study Stark and Taylor (1989) found empirical evidence that the initial relative deprivation of households in their village reference group plays a significant role in migration from Mexico to the United States. Controlling for initial absolute income and the expected income gains from migration, these authors showed that the propensity of households to participate in international migration is directly related to the households' initial relative deprivation. In this paper we expand this earlier work by addressing the role of absolute income versus relative deprivation incentives for internal and international migration in LDC households, taking into account continuities across some labor markets and discontinuities across others. The rationale for the analysis is threefold. First, there are fairly strong reasons to expec'. that the role of relative deprivation will differ between international migration and migration within a country, as we explain below. Second, sharp discontinuities in the returns to human capital between home- and host-country labor markets may affect the ability of households that differ in their human capital endowments to achieve gains in their income positions through  -2- international migration. Third, a relative deprivation approach to migration has important implications for development policy. For example, the effects of rural development policies on rural out-migration, as predicted by an expected income model, may be precisely opposite to those predicted by a relative deprivation model. In Section I of the paper we outline the absolute income and relative deprivation models of migration and present an illustration of their divergent policy implications. We also consider the likely case in which the decision to migrate and the choice of migrant destination arc influenced by both absolute income and relative deprivation objectives. In this case, income remittances from household members who migrate have a dual impact on the household's well-being: first, by contributing to its absolute income; second, by improving its income position relative to that of other village households. An attempt is made to identify distinct empirical implications of these two motives for migrating. In Section II, a migration decision model is estimated and is used to explore absolute and relative income motives for internal and international migration in a sample of rural Mexican households, as well as the extent to which the degree of discontinuity in labor markets shapes the choice of migrant destination. I. ABSOLUTE AND RELATIVE INCOME HYPOTHESES OF MIGRATION Empirical economic studies of migration are based on the general assumption that individuals migrate to maximize expected utility EU, which is typically defined on income Y at the end of the relevant time period:  -3- EU = EU(Y), (1) where U'(Y) > 9. Let Yi denote income associated with migration, net of any implied moving costs, and let Y0 denote income in the absence of migration. The absolute income hypothesis then states simply that a person will migrate if EU(Y1) > EU(YO). That is, an individual's labor is allocated to the labor market associated with the highest level of expected utility. A clearer pZcture of the economic determinants of migration can be gained when expected utility is replaced by its Taylor-series approximation around the expected income EY (David 1974): EU(Y) = U(EY) + 0.5U"(EY)s', (2) where s2 is the variance of income Y and U"(EY) is the second derivative of utility evaluated at expected income EY. If decision-makers are risk neutral - that is, if U"(EY) is zero - equation (2) reduces to the expected income hypothesis (see, for example, Todaro 1969), which states that labor will be allocated to the destination that maximizes expected income. In contrast, if the migration decision-maker is risk averse - that is, U"(EY) < 0 - then migration decisions are influenced by both the mean and the variability of income associated with alternative locations, as well as by the decision- maker's aversion to risk. In the case of risk aversion, the absolute income model predicts that an individual will migrate if the corresponding expected income gain outweighs any increase in income risk that may be associated with migration (Stark and Levhari 1982).1 Several studies provide empirical  -4- support fo: an absolute income motive for migration, with regard to both expected income (Y. 1977; Todaro 1980) and risk (Lucas and Stark 1985; Taylor 1986; Rosenzweig and Stark 1989). A. A RELATIVE DEPRIVATION HYPOTHESIS In earlier papers (Stark 1984; Stark and Taylor 1989) it was hypothesized that household members undertalce migration not necessarily to increase the }.ousehold's absolute income but rather to improve the household's position (in terms of relative deprivation) with respect to a specific reference group. The case studied in those papers is of individuals who engage in migration to improve the income position of their households relative to that of all ather households in the village. Consider two villages of households whose incomes are as follows: A1 = (20,30,40,50,60) and A2 = (20,37,38,39,40,41,42,43,60). These two income distributions share the same a.erage income (40), and both cover the same income range (20,60). However, whereas the five household incomes in A1 are uniformly distributed over this range, seven of the nine incomes in A2 are concentrated around the mean. Suppose that by reallocating some of its labor to migration the household earning the average income in each village can enjoy a 20 percent (8-unit) increase in absolute income. For the household in A2, this absolute income gain translates into a relative income gain of three ranks, enabling that household to move to within one rank of the top of its village income distribution. In contrast, the same absolute income gain leaves the A1 household's rank unchanged. Assume that the nature of the reallocation is  5 such that when a ho sehold member is ass.gned to a different sector, the household together with that member continue to consider Ai as the relevant reference distribution. (This assumption it discussed below in the context of international and internal migration.) If household utility is a function not only of absolute income but also of ranking in relation to other households in the village, then we would intuitively expect that the average household in A2 will have a stronger motivetion to participate in migration than the average household in A1. That is, a given absolute income gain associated with an improvement in rank is worth more than an identical income gain without an improvement in rank. Consider now the poorest households in A1 and in A2. Suppose tha- each of these households can reap a 60 percent (12-unit) gain from migration by one of its members. This gain will not cause a rank change for the household in A2, but the household in A1 could escape from the very bottom of its village's income distribution through migration. Other things being equal, a given absolute income gain may be considered more valuable in the latter situation than in the former. The two examples above have in common a correlation between rank within an income distribution and absolute income. However, we can easily consider rank gains that are not associated with income gains, or rank losses that are not associated with income losses. Consider two village household income distributicns given by B1 = (30,35,40,45,50) and B2 = (30,32,34, 47,62). For the household with income equal to 35, relocation from B1 to B2 would result in a rank gain that is not associated with an absolute income change. Intuition alone, however, may not provide clear-cut guidance on  -6- whether to expect this move to take place. Even though the change implies a higher rank in a new reference group having the same average income (after 35 is added to B2, the average income in B2 is 40), in a cardinal sense the new position may be perceived as inferior (if judged, for example, by the distance from the highest-income household: 62-35 > 50-35). An ambiguity arises in this case because the simple rank measure is not sufficiently sensitive to all rank-related information. Hence there is a need to adopt a more complete measure of income ranking and relative deprivation. We shall draw here on an axiomatic foundation for an index of relative deprivation reported in related papers (Stark and Yitzhaki 1988; Stark and Taylor 1989). Let RD' denote household i's relative deprivation. Assume a continuous income distribution. Each income unit can then be represented by an income range [x,x+4x], where AxO. Let F(x) be the cumulative distribution of income in a village. Then l-F(x) is the percentage of households whose income is higher than x. Hence l-F(x) represents the percentage of households that have incomes sufficient to obtain the commodities represented by the income range [x,x+Ax]. By hypothesis, the feeling of deprivation is an increasing function of the percentage of households with incomes larger than x. Let g[l-F(x)] be the deprivation from not having [x,x+AxJ, where g(O) = 0 and g' > 0. A household with income x is deprived of all units of income above x. Thus, we can write the relative deprivation of household i, whose income is yi, as RDi = fyi g[l-F(x)ldx, (3) yI  -7- where yh denotes the highest village income. To simplify the discussion, we shall assume a simple form of g[l-F(x)] =l-F(x). Subject to somi algebraic manipulations, the expression on the right-hand side of equation (3) can be decomposed into the product of the mean excess income of households richer than the household with income y' and the proportion Af households in the village that are richer than the household with income y . (For these procedures and an analysis of the more general form g(.-), see Stark and Yitzhaki 1988.) This interpretation nicely captures the point that, if all rankings are left intact, any increase in the income of a household richer than household i will increase the relative deprivation of household i, whereas any rank gain by household i (resulting in a decline of the proportion of households richer than i) will reduce the relative deprivation of household i. Given this interpretation, in the example above cf household income distributions B1 and B2, the ambiguity associated with the relocation of the household with an income of 35 is not only better understood but is also resolved because the two effects are duly weighted (resulting, in the case of the example, in an increase of relative deprivation from 6.0 to 6.5). The relative deprivation hypothesis is that migration will be observed if EUR1 EURD0 where RD1 is the relative deprivation associated with migration and RDO is the relative deprivation in the absenc3 of migration. Thus individuals or households below the upper end of the inconie distribution may decide to engage in migrction on the assumption that they will thereby succeed in improving their positions in the village by securing an income higher than their initial income. To illustrate some of the new policy implications of the relative  -8- deprivation approach to migration, we consider an extreme example. In a country consisting of a village and a town, the income of every village household is 100; in the town, it is 200. As the result of a certain development policy, tile income of half the village households rises to 150. What are the likely migration implications? In a world motivated solely by income differentials, the incentives for village-to-town migration will have declined unequivocally: the propensity to migrate of those earning 150 has declined, whereas that of those earniing 100 remains as before. In a world motivated solely by relative deprivation, the prediction is exactly the opposite. If the village is the relevant reference group for village households, before the change no household had any inducement to migrate, since the relative deprivation of each and every household was nil. After the change, however, half of the village households - those which now experience relative deprivation (at the level of 25 units of income) - will have an incentive to migrate, whereas the incentive to migrate of tha others (whose income is 150) will retnain at zero. When a household's utility is a function of both absolute income and relative deprivation arising from intra-group income comparisons, the effect of a policy change on the propensity to migrate from the village cannot be pre-signed because there are conflicting effects: the lower inducement to migrate of the househoids whose absolute incomes rise has to be weighed against the new inducement to migrate on the part of households whose relative incomes fall. The received theory, however, will _dmit only the former inducement and is completely blind to the latter. The relative deprivation theory of migration and the received theory of migration based on absolute  -9- income differencials generate conflicting predictions. Suppose that a development agency is ntt indifferent to the migration implications of its policies and wishes to induce less migration, more migration, or keep migration at its existing level. If the relative deprivation theory of migration obtains, a new policy instrument is identified, and the policy mix will thereby change. For example, in an effort to stem rural-to-urban migration, equalization of the rural income distribution could be combined with, reinforced by, or substituted for the narrowing of town-village income differentials. B. AN INTEGRATED APPROACH In real life it is likely that migration decisions are influenced by both absolute and relative income cons,derations. In thi, case utility is of the form U - U(Y, RD),. (4) where au/aY > 0 and WU/MRD < 0. The net utility gain from migration is given by tne differential a1= U(Y1, RD1) - U(YO, RDO). (5) This can be expressed as a function of YO, RDO, and the net household income gain from migration (which we shall denote W) by replacing RD1 with its Taylor-series approximation around YO:  - 10 - A1 = UtY0 + W, RD + RD;W] - UN, RDO] (6) = 0(Yo, RDO, W), where RDI is the change in relative deprivation brought about by a small 0 change in income at income level Y0. Assume for a moment that the relative deprivation function is staole in the face of migration by one or more household members - that is, the household including its migrants continues to view the village as its relevant reference group. In this case, any variable that enhances the net returns W from migration can increase the household's incentive to participate in migration in two ways: first, by increasing absolute income Y1 = Y0 + W; second, by decreasing relative deprivation, since by construction RDO < 0. On the basis of this consideration, the effect of a household's income and relative deprivation levels in the absence of migration on its propensity to participate in migration is generally predictable. At low levels of income, incentives to engage in pozentially income-enhancing migration may be strong. On the absolute income side, low village incomes presumably imply large income disparities between migration work and village work, and hence large potential net gains from migration. Low village incomes are also associated with high degrees of relative deprivation as defined in equation (3), and hence the incentive to reduce relative deprivation through migration may also be large for low-income households. Thus, other things being equal, both the absolute and relative income hypotheses would predict a greater desire to engage in migration among households or individuals at the lower end  - 11 - of the village income spectrum. However, in the absence of smoothly functioning credit markets that give explicit preference to the poor - a condition characteristic of village economies in LDCs - households or individuals at very low levels of absolute income may be unable to engage in migration if migration is costly and the initial risks associated with it are high.2 In addition, at incomes very near or below subsistence, relative income considerations are not likely to matter as much as concerns for mere survival. Thus, we would expect a small increase in income (and a small decrease in relative deprivation) to have a positive effect on migration from households at the very bottom of the village income distribution - owing, first, to a loosening of capital constraints on migration and, second, to the increasing importance of relative deprivation considerations ill these households' labor allocations. At higher income levels, in contrast, both the relative and absolute income hypotheses predict that increases in income will reduce the likelihood that households or individuals will engage in migration. It is therefore impossible on purely theoretical grounds to separate the effect of absolute income incentives from the effect of relative income incentives for migration, since, when credit markets are highly imperfect, absolute and relative income effects of changes in village incomes tend to move in tandem. Note that migration studies that ignore relative income effects may place undue significance on absolute income motives for migration.  - 12 - C. REFERENCE GROUP SUBSTITUTION, LABOR MABRKET DISCONTINUITIES, AND DESTINATION CHOICE In a relative deprivation model of migration there is a risk that, through a reference group substitution of the host community for the village community, households may fail to decrease their relative deprivation - even if their relative incomes in terms of the village income distribution improve. That is, the household's relative deprivation function may not be stable in the face of migration by one or more household members. The household's well-being is an increasing function of the well-being of all its members, regardless of their location. Migration may be associated with a rise in a household's relative deprivation if the host community becomes the relevant reference group for either the migrant or, perhaps less likely, the household members who remain in the village. In a recent study it was argued that international migration, to an entirely different social and cultural milieu, can carry with it built-in protection against such reference group substitution and can ensure that the original reference group continues to be the relevant one for the migrant and his or her household (Stark and Taylor 1989). By locating themselves in a host community distinct from their own, migrants are less likely to orient themselves to the host community than if they were to locate themselves in a "neighboring" host community. For a comparison with the host community to occur, some "minimal similarity" between the migrant and that community must be perceived. This becomes more likely when direct social interaction or sustained social relations persist. In some cases, the host community may be intentionally selected to ensure estrangement, detachment, and social  - 13 - distance. Migrants may wish to guard against becoming oriented to the host community for fear that the secondary negative effects of a changing reference group might outweigh the primary positive effect of improving their position in relation to the original reference group. Thus international migration can enable households to exploit cultural and social discontinuity across international frontiers, capture this discontinuity, and transform international dissimilarities into a source of advantage. This consideration applies in particular to repetitive or temporary migration rather than to permanent, once-and-for-all migration; in the recent study cited, migration was by and large of the former type.3 Indeed, households may behave strategically to preempt reference group substitution associated with migration of a long duration by given (that is, the same) household members. Household members might be shuffled between destination and home, replacing each other as migrants. Note that, by constructioii, the analysis in the present paper is of a short-run nature. Reference group association and household attachment could become endogenous processes conditional on relative performance in a set of reference groups. Households and individuals may substitute one reference group for another to suppress the dissatisfaction arising from a high level of a group-specific relative deprivation. Such a substitution typically involves locational and mental migration and is bound to be time consuming. In contrast with international migration, migration within a country is more likely to generate alienation and increased relative deprivation through a smooth reference group substitution, particularly when the country is socially and culturally homogeneous. These considerations suggest that the  - 14 - role of relative deprivation in internal migration may be quite different from the role of relative deprivation in international migration, owing to social and cultural discontinuities across international borders. Indeed, the full logic of this argument could lead to a puzzling neutrality result. Consider a household that experiences intra-village relative deprivation while, at the same time, facing a positive urban-to-rural income differential for one of its members. Should that household member engage in rural-to-urban migration, his increased alienation arising from a reference group substitution could offset any absolute income gain. The village household may recognize that the migrant member would need to "tax" his higher urban income to compensate for a rising relative deprivation, thereby leaving little for urban-to-rural remittances. In this case, a relatively deprived household would not engage in internal migration via one of its members, even though the associated expected absolute income differential is positive. Consequently, neither the estimated coefficient for relative deprivation nor that for absolute income may appear significant in an econometric migration model. Discontinuities in labor markets across international frontiers may, however, temper the role of relative deprivation in migration decisions. Paramount among these are sharp differences in the return: to human capital. Education, skills, and work experience in the home country may enhance the returns to internal migration. But it is less clear to what degree these human capital assets are internationally transferable. When international migration takes the form of illegal entry into the host country, as is frequently the case with migration from rural Mexico to the tnited States, the  - 15