Does High Inequality Attract High Skilled Immigrants?

Abstract

This study examines how the sources and levels of income inequality affect how a country attracts and retains high skilled workers. With parameter values that yield realistic levels of emigration, our model shows that emigration rates increase with education when the returns to education are higher abroad. However, the relationship between unobservable skills (‘residual wages’) and emigration can display an inverse U-shaped pattern, if unobservable skills are composed of both ‘general’ and ‘country-specific’ skills. Using data on Israeli emigrants before they decide to emigrate, we find strong empirical evidence in support of the model's predictions.