> is that they are unable to explain migration from high income/low unemployment regions

> to regions that are on average less attractive. This pattem of migration is exactly what is being observed between Northeast and Southeast Brazil. While the SE has higher levels of income and general standards of living, in recent years the phenomenon of significant

> SE-NE migration has been observed. The heterogeneity of the migrant population offers

> an explanation of this phenomenon. Since both individual-specific characteristics and individual responses to social and economic forces matter for the migration decision, it

> becomes evident that relative returns to specific educational attainments in a particular

> region, and not its average levels of incomes or wages, are the driving force behind individual migration. Migrants from the SE to the NE, because of their heterogeneity,

> might be filling niches in the labor market that are education- or skill-specific.

Differences in educational attainment, location of migrants, and employment patterns documented above for migrants between the two regions suggest that individual heterogeneity rather than aggregate regional conditions are driving migration decisions. These differences further suggest that relative rates of return to educational investments between the two regions should help explain observed migration pattems. Below, we examine these rates of returns, using statistical and graphical techniques. First, we examine relative regional returns to education, without controlling for other individual attributes. Second, we note that because regional rates of return are jointly determined with the decision to migrate, we control for the endogeneity of the migration decision while estimating wages. We employ a standard version of a mover/stayer model and estimate the relative rates of return to migration.

# **4.1 Wages and their Determinants**

> Wages and incomes are higher in the SE than in the NE, but relative wages between the

> regions converge to nearly unity for increasing levels of education. Workers with high levels of education receive similar wages in NE and SE Brazil (Figure 4.17). Low-

> education workers receive a 12 to 20 percent wage premium in SE Brazil (relative to

> NE), depending on the year of the survey, but the premium declines almost monotonically with the level of education. These findings are consistent across years of the PNAD survey used. Figure 4.1 does not, however account for the effects of age,

> experience and other individual factors on relative return to education.

The relationship between educational attainment and relative return to education between regions is investigated more thoroughly using two separate regressions; one regression for the NE and are for the SE. In these, log-wages for all working adults are regressed on potential experience (age-years of completed schooling - 6), years of completed schooling and 14 dummy variables, which captures the effects of 1 tol5 years of completed education.<sup>8</sup> The SE-to-NE ratio of the coefficients on the 14 education dummy variables<sup>9</sup> are plotted in Figure 4.2.

> **8** See Schady (2001) for a more detailed outline of the methodology.

> **9** These coefficients were obtained from separate (NE, SE) regressions based on PNADs 1992-1999 data.

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