Labour Market Impact of Internal Migration: A Municipality Level Panel Data Analysis of South Africa

ABSTRACT While existing studies show that migration improves the probability of being employed for the migrant, the impact of migration at a regional level is less understood. This study therefore attempts an empirical verification at the municipality level of the effects of migration on labour market outcomes in South Africa using five waves of National Income Dynamics Survey (NIDS) panel data. Aside from fixed effects regression models, the study tests for endogeneity emanating from both unmeasured confounding and possible reverse causality between migration and labour market conditions of destination municipalities using the variable stability argument and heteroscedasticity‐based internal instruments respectively. While the results show no significant effect of migration on total employment rates, there is evidence of significant impact on the labour market structure of municipalities, with a positive effect on formal‐sector employment rate and a negative effect on the informal‐sector employment rate. This is indicative of the higher‐than‐average abilities and qualities of migrants that allow them to succeed in the destination labour markets. The expectation, therefore, is for internal migration to continue in South Africa until the expected wage rates are equalised between the sending and receiving areas.