Social networks and earnings differential of internal migrants in Indonesia: a switching regression

Abstract

AbstractThis study examines the earnings differential between users and non-users of networks of Indonesian internal migrants. By exploiting the Indonesian Family Life Survey wave 5, we employ endogenous switching regression to handle the self-selection bias in the model. We find evidence that the inherent characteristics of the migrants create a tremendous earnings gap between the two agents. Users of networks experience a wage penalty compared to non-users of network. We also find that education has a dominant impact on increasing the earnings discrepancy for migrants. These suggest that network users find it difficult to catch up on the earnings of their non-user counterparts. In addition, the study reveals that networks are not necessarily the only influencing factor of earnings differential. Moreover, the study specifically suggests that hiring channel through networks supports migrants in securing employment. However, the low education levels of the migrants restrict them from enjoying higher earnings.Keywords: Social networksearnings differentialinternal migrantswitching regressionJEL CLASSIFICATION: J01J31J61 Disclosure statementNo potential conflict of interest was reported by the authors.Additional informationNotes on contributorsSiti ParhahSiti Parhah is a lecturer and researcher at the Department of Economic Education, Universitas Pendidikan Indonesia (Indonesia University of Education). She earned her bachelor degree in Economic Education from Universitas Pendidikan Indonesia (2003), a Master degree in Economics from Universitas Indonesia (2006) and a Ph.D in Economics from Universitas Padjadjaran, Indonesia (2020).Armida S. AlisjahbanaArmida Salsiah Alisjahbana was appointed Under-Secretary-General of the United Nations and Executive Secretary of the Economic and Social Commission for Asia and the Pacific (ESCAP) on 13 September 2018. Prior to joining ESCAP, Ms. Alisjahbana was Professor of Economics at Universitas Padjadjaran in Bandung, Indonesia, a position she assumed in 2005.Mohamad FahmiMohamad Fahmi is a lecturer and researcher at the Department of Economics, Universitas Padjadjaran. Fahmi earned his bachelor degree in Economics from Universitas Padjadjaran, Indonesia (1997), a Masters degree in Industrial Economics from ITB, Indonesia (2002), and a Ph.D in Economics of Education from La Trobe University, Australia (2010).Raden Muhamad PurnagunawanRaden Muhamad Purnagunawan is a Senior lecturer and researcher at the Department of Economics, Universitas Padjadjaran. Purnagunawan earned his bachelor degree in Economics from Universitas Padjadjaran, Indonesia (2007), a Masters degree in Industrial Management from ITB, Indonesia (2001), and a Ph.D in Economics from Australian National University, Australia (2011).