How does Emigration affect Labor Markets? Evidence from Road Construction in Brazil

Abstract

We study the impact of emigration on local labor markets, based on the construction of a 1,087km road in northeastern Brazil. The new road has changed population substantially, creating new cities along its path and increasing internal migration flows. We first use a reduced-form approach to estimate the effect of emigration on skill groups (defined by education and experience) - a 10 percentage point increase in the proportion of emigrants raises wages by 5%. Then, using a structural approach, we estimate cross effects among groups - although emigration typically raises wages, complementary effects determine negative impacts in some municipalities.