A sticky situation: Trade-offs in Migration
After the GFC, Greece faced its own sovereign debt crisis, known locally as The Crisis. GDP fell 26% from 2008 to 2014, the unemployment rate peaked at nearly 25%, and more than a third of the population lived below the poverty line[i]. As members of the EU, Greeks were able to move and work freely throughout Europe as they wanted. Yet over a six-year period, only 3% of the population emigrated. Should this number have been higher?
Economically, emigration makes sense. If there was an opportunity to significantly improve your living conditions, even if it meant you had to move, we might assume that you would take it. It would be the rational choice. Yet, in reality, not many people actually choose to move. Greece is just one example of this phenomenon.
In Rangpur, Bangladesh, professors from LSE, USYD and Yale sought to better understand this behaviour: the stickiness of labour movement[ii]. In Bangladesh, during monga – translated as ‘the season of hunger’ – there are very few opportunities to earn money in rural areas[iii]. Monga is a yearly, cyclical phenomenon of poverty and famine, which leaves rural Bangladeshis facing malnutrition and starvation. Despite this, few workers migrate to the cities or even to neighbouring towns, which possess a large amount of low-skilled employment opportunities.
The researchers partnered with a local NGO and randomly selected villagers from Rangpur to send an information pack to. The information pack provided some facts about the benefits of migrating to the cities and additionally, the villagers were promised $11.50 if they were to migrate to the city for the season. This covered transport costs and the cost of a couple of days of food.
For the households that took up the offer and migrated during monga, the outcomes were extremely positive. Most of the participants found employment, and on average the workers earned $105 over the period, significantly more than what could have been earned at home. The workers sent or brought back $66 to their families, which enabled them to eat 50% more calories, saving them from starvation. Overall, this was a great outcome, and showed that with improved education and a small financial incentive, the people of Rangpur could be made greatly better off.
Yet during the next monga, despite the considerable benefits experienced by the workers and their families, only 1 in 2 headed back to the cities to look for employment. Whilst 50% was considered in the paper as a successful return rate, it means that for a great number of the villagers, there were strong enough opposing reasons to prevent their return to the cities.
But what were those reasons? Why would the villagers choose the irrational decision of staying home?
Daniel Kahneman and Amos Tversky, two psychologists whose work in behavioural economics is widely important, studied the impact of losses and gains[iv]. Their work suggested that losses can be twice as powerful on the psyche as gains are, and so human behaviour dictates that we prioritise minimising potential losses above maximising potential gains[v]. They named this concept loss aversion, and is seen everywhere, from people paying for unreasonably excessive warranties, to paying large premiums on insurance in return for a low deductible[vi]. It is also particularly important in finance and investing.
Perhaps for our migrants in Bangladesh, the risk of loss in migration is too large to accept. The desire to avoid the potential loss of being unsuccessful in the city, added on to the potential emotional weight of leaving the village, may outweigh the potential benefits in finding employment there – even if the benefits could include avoiding starvation and malnutrition. Without the financial incentive offered by the study, and the certainty that employment can be re-found, it seems that the personal costs of uprooting oneself became – for many villagers – insurmountable. For migrants generally, perhaps the trade-off between facing uncertainty and the unknown outweigh the potential economic benefits of leaving the comfort and familiarity of home. That could explain what happened in Greece, too. In averting those losses, migrants really do forgo the gains.
In the end, choosing to migrate is difficult. Whilst it may seem clear from afar, leaving what is familiar, and attempting to find a life and identity elsewhere is not as simple a decision for potential migrants as conventional wisdom would have you believe. In the Bangladeshi study, this migration was only temporary, but for many, emigration will be permanent, amplifying the personal losses that will deter. And so, studying the empirical evidence in migration gives us a chance to dispel the simplicity of our rational economic assumptions, and instead, see the social side of our social science shine through.
Links to the studies:
https://onlinelibrary.wiley.com/doi/epdf/10.3982/ECTA10489?saml_referrer
https://www.jstor.org/stable/41755005
And the book from which most of this information came:
https://www.goodeconomicsforhardtimes.com/ , by Abhijit Banerjee and Esther Duflo
Mitchell Chang – Writer, ESSA
[i] Lois Labrianidis and Manolis Pratsinakis, “Greece’s New Emigration at Times of Crisis,” LSE Hellenic Observatory GreeSE Paper 99, 2016
[ii] Gharad Bryan, Shyamal Chowdhury, and Ahmed Mushfiq Mobarak, “Underinvestment in a Profitable Technology: The Case of Seasonal Migration in Bangladesh,” Econometrica 82, no.5 (2014): 1671 – 1748
[iii] Wikipedia contributors. "Monga (Bangladesh)." Wikipedia, The Free Encyclopedia. Wikipedia, The Free Encyclopedia, 27 Aug. 2020.
[iv] Wikipedia contributors. "Behavioral economics." Wikipedia, The Free Encyclopedia. Wikipedia, The Free Encyclopedia, 26 Jun. 2023
[v] Daniel Kahneman & Amos Tversky, "Advances in prospect theory: Cumulative representation of uncertainty," Journal of Risk and Uncertainty. 5 (4): 297–323, 1992
[vi] Wikipedia contributors. "Loss aversion." Wikipedia, The Free Encyclopedia. Wikipedia, The Free Encyclopedia, 27 Jul. 2023