Calculating the Cost of Emigrating

Sometimes, economics just seems to break down. Here’s George

Borjas, on the economics of emigration, specifically from Puerto Rico to

mainland US:

Between 30 to 40 percent of the Puerto Rican population chose to move out.

But that means that about two-thirds did not. Why? If economic theory is right,

it must be the case that there are huge costs associated with the migration.

Since these costs are unlikely to be monetary in nature, they represent the

fact that most people, if given the choice, would much rather stay where they

are at. It is not hard to calculate the migration cost for the "marginal"

migrant. And they are substantial: probably around $400,000 to $500,000.

(For those interested in technical details, the discounted gain from moving

for the marginal migrant must equal the cost of migrating. The half-million

dollar range comes about if one assumes that a worker can, say, double his

salary by migrating to the United States and the rate of discount is 5 percent.)

I fail to see how this "migration cost" is in any sense a useful

number, or that it reflects anything in the real world. Let’s say that Peter

Kann is right, and that financial journalists would make much more money

if they became bankers. Using Borjas’s technique, then, we can work out the

cost, to the "marginal" journalist, of becoming a banker; my guess

is that it’s probably many millions of dollars.

What’s more, that cost of becoming a banker has been soaring over the past

few years. Back in the wake of the dot-com bust, when bankers’ bonuses were

much lower, the cost of becoming a banker was also relatively low. But now that

bonuses look set to hit new

record highs, the cost of becoming a banker is surely enormous.

This is silly. There aren’t costs to becoming a banker, there are

reasons why one might not want to be a banker. If you’re happy as a

journalist and you wouldn’t be happy as a banker, then the amount of money that

bankers make is not going to change anything.

Similarly, there aren’t costs of half a million dollars or so associated

with moving to mainland US from Puerto Rico. It’s just something which a lot

of Puerto Ricans have no interest in doing — and given how nice their beaches

are, you can see why.

What’s more, by Borjas’s calculations, if Puerto Rico’s incomes caught up with

those on the mainland, then the cost of moving would drop to zero. Which also

makes no sense. Or am I missing something, here?

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