51st Congress of the European Regional Science Association: "New Challenges for European Regions and Urban Areas in a Globalised World", 30 August - 3 September 2011, Barcelona, Spain
It is generally accepted that migration will lead to an increase in income. However the question is how will income be distributed across individuals in society? If migrants have lower education levels, when compared to current urban workers, then the in ow of migrants will increase the skill wage gap in urban areas. Previous work on this topic has focused on international migration in developed countries. To the best of our knowledge this is the rst study to look at the impact of rural-urban migration on city wages. Our results contribute to the evaluation of regional policies, as recent research has found that regional policies can lead to an increase (or decrease) in the number of rural to urban migrants. We use data the Brazilian Census for 1980 to 2000 to estimate the elasticity of substitution between high and low skill workers. We instrument for the change in the ratio of high to low skill workers, with rural-urban migrants (driven by rainfall shocks in rural areas). Finally, in our simulations we show that migration can only explain 3% of the decrease in the wage gap between high and low skill workers, in Brazil, between 1991 and 2000.