Self-Selection and the Returns to Geographic Mobility: What Can be Learned from the German Reunification "Experiment

This paper investigates the causal effect of geographic mobility on income. The returns toGerman East-West migration and commuting are estimated, exploiting the structure ofcentrally planned economies and a "natural experiment" of German reunification foridentification. I find that the migration premium is insignificantly different from zero, thereturns for commuters equal to 40 per cent, and the local average treatment effects forcompliers are insignificant. In addition, estimation results suggest no positive self-selectionon unobservables for migrants, and some evidence of positive self-selection onunobservables for commuters.