The model of migration

The standard model of migration considers it an investment, to be undertaken if the present value of the benefits exceeds that of its costs.

The costs of migration include two main elements: the direct cost of travel (the ticket plus ancillary expenses), and the opportunity cost of the time spent in travel and searching for work at destination (the income the migrant would otherwise have earned during that time). These costs are calculated in real terms, deflating the nominal figures by the price of the basket of goods the migrant consumes.

The corresponding benefit is the present value of the increase in the real wage over the rest of the migrant's working life. Assuming a constant flow over time, the migrant's calculus can be reduced to a comparison between the real cost c and the real benefit b = k(wd – wo), where wd and wo are the real wages respectively at destination and at the origin, and k is the corresponding capitalization factor (which varies inversely with the discount rate, and positively with the length of the expected working life). Labor thus moves from where real wages are low to where real wages are high; migration increases the migrant's real marginal product, and correspondingly increases world output.

This approach highlights various aspects of migration itself, and of its relation to trade.