Do immigrants overestimate wages abroad? New research evidence

Anecdotal evidence suggests that, prior to migration, migrants have over-optimistic expectations about life conditions and job opportunities in the destination country. Expectations determine the intention to move and may affect the success of the migratory experience. This blog presents new evidence on the factors that influence migrant expectations. A 2015 study, using data on irregular immigrants from 55 countries who crossed to Italy in 2003, shows that migrant networks and past experiences in the destination country shape expectations about wage outcomes at destination. Almost 84 percent of interviewed immigrants overestimated the wages that they could get in Italy.

Data on recent migrants to the EU shows that the bulk of inflows are of economic migrants ¹ rather than asylum seekers in need of protection. While asylum seekers are mainly forced to move economic migrants move on the basis of a rational calculation about working opportunities and income at destination. The bulk of economic literature on migration is built upon the assumption that potential emigrants are able to make an accurate assessment of what they leave in the home country in terms of economic wealth, and what they gain at destination by moving. Anecdotal evidence suggests, however, that migrant expectations about life conditions and earning potential at destination are not satisfied. For example, Albanian emigrants to Italy in the early 1990s believed that Italy offered great economic possibilities. To quote a young Albanian:

This quote suggests that potential migrants tend to over-estimate the outcomes of their migratory experience. There are two main consequences. For migrants, overestimates are seriously detrimental. In the first place, migrants facing the high financial and psychological costs of migration may get unexpectedly low returns, meaning frustration and possibly failure. For the host country, over–optimistic expectations may incentivize migratory flows and increase migratory pressure in destination countries; a pressure which is far from optimal socially.
Our current understanding of how migrant expectations form is scarce. The mismatch between expectations and realizations depends on a priori unrealistic and/or wrong expectations based on inaccurate information about life conditions and earning potential at destination. Potential migrants may have access to several information sources. The socio-economic behaviour of visiting immigrants might incorrectly shape the perception of residents about life abroad. For example, return migrants and their status consumption may wrongly convey signals of high returns associated with the migration experience to family and friends in the home location (Gmelch 1980 ^*).The media also seems to play a crucial, though ambiguous role, in informing potential migrants. The young Albanians’ over-optimistic perception of life-style and wealth in Italy was, in great part, transmitted by Italian TV (Mai 2004 ^*). On the contrary, another study argues that broadcasts enabled internal migrants in Indonesia to make a more realistic cost-benefit analysis of migration (Farré and Fasani 2013 ^*). A more direct channel of information to those people intending to migrate, is the network of parents and relatives living in the destination country. In principle, networks know the local context including labour-market conditions and wage prospects. Indeed, the better migration networks are integrated within the local context, the more accurate information they convey to potential migrants (Elsner et al. 2014 ^*).
In my study (Hoxhaj 2015), I empirically investigate how well pre-move migrants were able to predict their potential wages in Italy. The survey (SIMI 2003) asked 555 irregular immigrants from 55 origin countries, shortly after their arrival in Italy ² , about the wages they expected to get in their main job. Their expected wage was then compared to the wage a migrant with the same individual characteristics (age, education, gender, civil status), typically earns in Italy.
I found that almost 84 percent of those surveyed had over-estimated their wage potential in Italy, in particular, low-skilled migrants. In the first place, this result suggests they are less able to filter out the information on economic outcomes from the media: TV, radio and magazines. Moreover, as information sources have recently increased in complexity, not least with the arrival of social media, expectations of low- skilled migrants about conditions at destination may be distorted upwards. In terms of economic outcomes and psychological cost, the poorest category of migrant is often, then, the biggest loser.
This study also confirms that migrant networks are a relevant source of information for migrants. Information channels can be categorized into indirect and direct information channels. Indirectly, parents and relatives living abroad, through their status consumption and wealth signal high returns from migration. This channel explains our results quite well as we find that, on average, immigrants with an immigrant network, tend to overestimate their wages at destination. The direct channel seems, also, to be relevant. Direct communication (e.g. phone calls, direct contact) with networks is able to inform potential immigrants more accurately on labour-market characteristics and wages. Indeed, we find that irregular migrants within networks are more aware of the likely low returns on their human capital as networks signal to them the presence of “skills waste” in the destination labour market.
Immigrants with previous experience in Italy also tend to have inflated expectations about future wages and expect a higher remuneration on their skills. This suggests that return migrants may have more information on job opportunities at destination, but information on wages is not necessarily accurate and up to date. Moreover, their returns in Italy, per se suggests they are driven by high expectations and, most importantly, during their stay at home, they might transmit excessive optimism to potential immigrants.
In addition, this study provides evidence that the motivation of labour migrants is mainly driven by expected economic outcomes. Irregular migrants moving for other reasons such as asylum, study or family reunification do care primarily about the probability of entering and maybe legalizing their position in the destination country. Earning-motivated migrants are driven mainly, instead, by their income prospects at destination. Indeed, results show that earning -motivated migrants, especially those coming from the North African region, expect higher wages as compared to the other migrant typologies.
To conclude, inaccurate expectations may lead to misguided migratory behaviour on the part of migrants and moving costs may worsen their socio-economic situation. Information channels should be better investigated and enhanced in order to convey more accurate information to the potential migrants on the destination country, and in particular on the job market opportunities. In some circumstances, precise information might avoid and/or considerably reduce the phenomena of “failed migration” and lessen the migratory pressure experienced by destination countries.