Environmental migration and labor markets in Nepal

While an emerging literature cites weather shocks as major determinants of migration, scant evidence exists on how such migration impacts the labor markets of receiving communities in developing countries. We address this knowledge gap by investigating the impact of weather-driven internal migration on labor markets in a post-conflict country, Nepal, using household survey data in 2003 and 2010. In this period, 3 percent of individuals moved out of their district of origin during the four years preceding each survey round. Contrary to the conventional narrative, we find prevailing environmental and conflict factors entice workers with positively selected attributes (such as education and skill) to migrate. Marked skill differences between migrants and the native population render wage effects in the formal sector: an increase of 1 percentage point in migration reduces wages in the formal sector by 4.8 percentage points. The absence of wage effects in the informal sector is consistent with the exit of low-skilled native workers from the labor market. To inform pathways to labor market resilience, future research is needed to understand the constraints migrants face in starting their own enterprises and the drivers of labor market exits among the low-skilled natives.