New Economics of Labor Migration Test

The new economics of labor migration (NELM), launched by Oded Stark and David Bloom in 1985, recasts migration as a decision made by households rather than isolated individuals and as a strategy aimed at managing risk and relative standing rather than simply maximizing one earner's wage. In the neoclassical view a worker migrates because expected earnings abroad exceed earnings at home; NELM argues instead that families in economies with missing or imperfect insurance and credit markets send a member away to diversify income sources and to relax the constraints those market failures impose. Stark and Taylor's 1991 paper added a second, distinctive motive: households migrate to reduce their relative deprivation — their position in the local income distribution — so that a family can be absolutely well-off yet still send a migrant because it feels poor relative to neighbors. Testing NELM therefore means estimating migration and remittance behavior as functions of household risk exposure and relative deprivation, not just the wage gap. Massey and colleagues' 1993 review positioned NELM as the principal theoretical rival to neoclassical migration economics. The test is fundamentally a household-level econometric exercise that pits these motives against the simple expected-income account.