Education, mobility and the college wage premium

•A dynamic Roy model explains the wage and the mobility by education.•The spatial volatility of labor income is larger for the more educated.•Among the more educated, in-migrants earn more than the local residents.•Among the less educated, in-migrants earn less than the local residents.•Labor mobility and the college wage premium are positively related.

Motivated by large educational differences in geographic mobility, this paper considers a simple dynamic extension of Roy׳s (1951) model and analyzes it using new evidence on net versus excess mobility and the individual-level relationship between mobility and wages. According to the model, the dispersion of a labor income shock specific to a worker-location match is greater for more educated workers and accounts for large educational differences in mobility. In the model, labor mobility raises both the average wage and the college wage premium, a prediction consistent with differences between Europe and the U.S.