Effect of foreign experience on return migrants ’ earnings: Causality and heterogeneity

The paper exploits a recent survey of over ten thousand economically active residents of Latvia; about 5 % of respondents have worked abroad over the last three years, while 12 % have family members with such experience. Post-enlargement labor migration from Latvia has been predominantly low-skilled, yet return migrants when compared to stayers are, on average, more educated and less likely to work as unskilled manuals. We combine instrumental variables and propensity score matching methods to study the effect of foreign experience on earnings. Results suggest that return migrants are neither positively nor negatively selected in terms of earnings. However, after controlling for worker demographic characteristics and education, as well as foreign and unemployment experience of family members, returnees command a substantial (15 % on average, more than 20 % among men, and 6 % among women) earnings ’ premium. Accounting for variety of job characteristics leaves the gap unchanged among all workers, narrows it down somewhat among men, but slightly extends among women. In the upper quartile of earnings distribution the unexplained gap in favor of return migrants exceeds 40%, while in the bottom quartile it is negative; this pattern persists also in subpopulations split by gender, ethnicity, occupation, or education. A simple behavioral model of remigration helps to explain such heterogeneity