The cost of living,labor market opportunities,and the migration decision: A case of misspecification?

A large literature has emerged dealing with the economic and non-economic determinants of migration. Among the economic determinants of migration are income levels and rates of change in income in different areas. These variables are designed to measure labor market opportunities both currently and in the future. Invariably, studies which attempt to explain migration utilizenominal measures of income and change in income, notreal measures. Yet assuming that individuals are not subject to money illusion, they would be interested in cost of living information as well as in information regarding nominal income and change in income. This paper examines this issue empirically. We demonstrate that some cost of living variables, when included in a migration equation, enter with the expected sign and are statistically significant. We also demonstrate the failure to include such variables in a regression results in misspecification and bias involving some of the variables in the regression.They wish to thank Professor Mark Fabrycy for helpful suggestions. They also thank their graduate research assistants, Bobbie Sheperd, Alison Zatik and John Breivogel, for data collection and computational assistance. They authors alone are responsible for any remaining shortcomings.