from other sources for the countries also in our sample. The ratio of real wages in the US to those in India for the same low-skill occupation is somewhere between 5 and 14.

# **Table 1: Previous estimates of the ratio of wages in the US to those in other countries (PPP adjusted), without controlling for individual traits**

|Occupation|Freeman & O<br>Carpenter|ostendorp<sup>3</sup><br>Laborer|Rama &<br>Artecona<sup>4</sup><br>Industry|UBS<sup>5</sup><br>Laborer|
|---|---|---|---|---|
|Year|1995|1995|1990-94|2006|
|Median|6.36|7.67|4.26|4.65|
|N|12|11|28|13|
|_Selected countries_|||||
|Bolivia|6.15|6.37|5.32||
|India|9.15|7.67|5.32|14.16|
|Mexico|6.57||2.78|7.49|
|Nigeria||10.60|||
|Turkey|||1.99|2.97|

_N_ gives the number of countries in the source that 1) have data for both the country in question and the US, and 2) are one of the 42 countries studied in this paper. Blank cells indicate no data for that country.

But even in the same sector or occupation, workers in the US can differ from those in India with characteristics (e.g. education) that affect their intrinsic productivity. The unanswered question is how much of these observed gaps reflect differences in compensation between otherwise equally productive workers who would wish to migrate. Such gaps are (a) the result of wage discrimination (b) induced by border restrictions (c) whose relaxation would create large income gains for very poor people.

Wage ratios adjusted for worker productivity (and compensating differentials) are our ultimate goal. We begin by laying out the assumptions that underlie the baseline

> 3 Freeman and Oostendorp (2005) calculate average monthly wage rates for male workers, in US dollars at Purchasing Power Parity, in 1995. “Carpenter” refers to ILO occupation code 88 (“construction carpenter”), and “laborer” refers to ILO code 90.

> 4 Rama and Artecona (2002) calculate “industry” wages as: “Labor cost per worker in manufacturing in current US dollars per year. Includes male and female workers. Calculated as the ratio between total compensation and the number of workers in the manufacturing sector as a whole. Compensation includes direct wages, salaries and other remuneration paid directly by the employer; plus all employers’ contributions to social security programs on behalf of their employees. Data on labor costs per worker are from plant-level surveys covering relatively large firms, mostly in the formal sector of the economy. Figures are converted into US dollars using the average exchange rate for each year. In countries of the former Soviet Union, the exchange rate of 1989 is used for previous years.” “Government” wage is “Average wage of employees in the central or general government, in current US dollars per year. Includes male and female employees. Calculated dividing the government payroll by the total number of employees. Data are from government records. Figures are converted into US dollars using the average exchange rate for each year.” Both of these are converted to PPP dollars using the PPP-to-official-exchange-rate ratio from World Bank (2007).

> 5 The UBS estimates (Hoefert and Hofer (2007)) are for urban areas (respectively: Buenos Aires, New Delhi, Seoul, Mexico City, Manila, Bangkok, and Istanbul, with the US represented by New York City), and show the hourly wage (assuming 50 working weeks per year) of a “building laborer”, 25 years old, single, unskilled or semi-skilled (p. 41) adjusted for cost of living in each city by the prices of 95 goods and 27 services (p. 8).

4