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Understanding Gross Workers Flows Across U.S. States

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  • Daniele Coen-Pirani

    ()
    (Tepper School of Business Carnegie Mellon University)

Abstract

This paper documents and provides an explanation for the main stylized facts about net and gross workers flows across states in the U.S. While it is generally known that gross flows of population across locations are significantly larger in the United States than within most European countries (see Hassler et al., 2005), there is considerable heterogeneity in gross and net flows across locations within the United States itself. The main purpose of the paper is to test whether a simple general equilibrium search model based on Lucas and Prescott (1974)'s island economy can account for the main stylized facts. The paper builds on work by Blanchard and Katz (1992), who focus only on net, rather than gross, flows of workers and on the partial equilibrium analysis of migration decisions by Kennan and Walker (2005). I start by documenting these facts using the decennial Census of the U.S for the post-WWII period. The latter allows one to determine a respondent's state of residence in the Census year as well as five years before the Census year. This information is used to construct state-level aggregate gross and net flow rates of workers. These flows are adjusted to take into account the different demographic and industrial composition of the workforce across states and differences in other state characteristics, such as size. The key stylized facts are as follows. In the cross-sectional dimension: (1) gross inflow rates are more dispersed than net flow rates, which, in turn, are more dispersed than gross outflow rates. (2) Gross inflow and outflow rates are positively correlated. (3) Gross and net inflow rates are highly positively correlated, while net flow rates and gross outflow rates are uncorrelated. These three facts suggest that reallocation of population within the U.S. occurs mainly through variations in gross inflows (large in fast-growing states and small in slow-growing states), rather than in gross outflows. In other words, states that tend to lose population to other states do so by attracting fewer new workers as opposed to losing more local ones. In the time-series dimension, there is a large degree of persistence in both gross and net flow rates across Census years for a given state. Last, there is no significant correlation between average state wages (adjusted by differences in living costs) and gross or net flow rates. In order to explain these facts, I consider a simple search model. The model economy is composed by a set of local labor markets ("islands"), that are hit by idiosyncratic and persistent labor demand shocks. Local wages tend to rise in response to these shocks, but workers' mobility across islands limits the extent to which wages can differ across locations. At a point in time, a location experiences both gross inflows and gross outflows. This is because offered wages in an island, in addition to a location-wide component, also have an idiosyncratic one. The latter gives rise to gross flows. In general equilibrium, the value of migration is pinned down by a zero excess demand condition for aggregate net flows. The model's parameters are estimated using a simulated method of moments. Specifically, estimation occurs in two stages. I first derive the law of motion for net flow rates implied by the model. This is shown to depend on the parameters of the stochastic process for the labor demand shock. The latter are estimated by matching the cross-sectional dispersion of net flow rates and their first and second order autocorrelation coefficients. Second, I feed the estimated process for local labor demand shocks into the model and estimate the remaining parameters by matching the following cross-sectional moments: observed dispersion in average relative wages, average observed wage dispersion within states, the average outflow rate across states, and the fraction of all moves that are motivated by economic factors. At the time of this writing, the estimation of the model is still taking place. Preliminary results based on calibrations of the model are promising. In particular, the model can account for the dispersion in gross flows and the positive cross-sectional correlation between inflows and outflows. The estimated model can be used to assess the quantitative importance of some of the explanations that have been proposed for the lower mobility rates within European countries than in the U.S.: higher compression of European wage distributions, lower dispersion of demand conditions across local labor markets within European countries, etc

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 459.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:459

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Fax: 1-314-444-8731
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Web page: http://www.EconomicDynamics.org/society.htm
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Keywords: Geographical mobility of labor; gross flows; wage differentials;

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References

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  1. Ciccone, Antonio, 2002. "Agglomeration effects in Europe," European Economic Review, Elsevier, vol. 46(2), pages 213-227, February.
  2. David Y. Albouy, 2008. "The Unequal Geographic Burden of Federal Taxation," NBER Working Papers 13995, National Bureau of Economic Research, Inc.
  3. Fernando Alvarez & Marcelo Veracierto, 2005. "Fixed term employment contracts in an equilibrium search model," Working Paper Series WP-05-14, Federal Reserve Bank of Chicago.
  4. Rappaport, Jordan, 2004. "Why are population flows so persistent?," Journal of Urban Economics, Elsevier, vol. 56(3), pages 554-580, November.
  5. Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, vol. 7(2), pages 188-209, February.
  6. Greenwood, Michael J, 1975. "Research on Internal Migration in the United States: A Survey," Journal of Economic Literature, American Economic Association, vol. 13(2), pages 397-433, June.
  7. Fernando Alvarez & Marcelo Veracierto, 2000. "Labor-Market Policies in an Equilibrium Search Model," NBER Chapters, in: NBER Macroeconomics Annual 1999, Volume 14, pages 265-316 National Bureau of Economic Research, Inc.
  8. Jovanovic, Boyan & Moffitt, Robert, 1990. "An Estimate of a Sectoral Model of Labor Mobility," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 827-52, August.
  9. Gueorgui Kambourov & Iourii Manovskii, 2009. "Occupational Mobility and Wage Inequality," Review of Economic Studies, Oxford University Press, vol. 76(2), pages 731-759.
  10. Roc Armenter & Francesc Ortega, 2010. "Credible Redistributive Policies and Migration across US States," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(2), pages 403-423, April.
  11. Northwestern University & Damba Lkhagvasuren, 2007. "Big Locational Differences in Unemployment Despite High Labor Mobility," 2007 Meeting Papers 922, Society for Economic Dynamics.
  12. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle.
  13. Davis, Steven J. & Haltiwanger, John, 1999. "Gross job flows," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 41, pages 2711-2805 Elsevier.
  14. Roback, Jennifer, 1982. "Wages, Rents, and the Quality of Life," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1257-78, December.
  15. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
  16. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
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Citations

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Cited by:
  1. Roc Armenter & Francesc Ortega, 2010. "Credible Redistributive Policies and Migration across US States," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(2), pages 403-423, April.
  2. Francesc Ortega & Giovanni Peri, 2009. "The Causes and Effects of International Labor Mobility: Evidence from OECD Countries 1980-2005," Human Development Research Papers (2009 to present) HDRP-2009-06, Human Development Report Office (HDRO), United Nations Development Programme (UNDP), revised Apr 2009.
  3. Damba Lkhagvasuren, 2005. "Big Locational Differences in Unemployment Despite High Labor Mobility," Working Papers 12002, Concordia University, Department of Economics, revised Feb 2012.
  4. Damba Lkhagvasuren & Roy Nitulescu, 2011. "Sectoral Mobility and Unemployment with Heterogeneous Moving Costs," Working Papers 13003, Concordia University, Department of Economics, revised 14 May 2013.
  5. Bayer, Christian & Juessen, Falko, 2008. "On the Dynamics of Interstate Migration: Migration Costs and Self-Selection," IZA Discussion Papers 3330, Institute for the Study of Labor (IZA).
  6. Plamen Nenov, 2013. "Regional Mismatch and Labor Reallocation in an Equilibrium Model of Migration," 2013 Meeting Papers 565, Society for Economic Dynamics.
  7. Keisuke Kawata & Kentaro Nakajima & Yasuhiro Sato, 2013. "Analyzing the impact of labor market integration," Discussion Papers in Economics and Business 13-28, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  8. Davis, Morris A. & Fisher, Jonas D. M. & Veracierto, Marcelo, 2013. "Gross Migration, Housing and Urban Population Dynamics," Working Paper Series WP-2013-19, Federal Reserve Bank of Chicago.
  9. Lkhagvasuren, Damba, 2012. "Big locational unemployment differences despite high labor mobility," Journal of Monetary Economics, Elsevier, vol. 59(8), pages 798-814.
  10. Damba Lkhagvasuren, 2006. "Education, Mobility and the College Wage Premium," Working Papers 14001, Concordia University, Department of Economics, revised Nov 2013.
  11. Francesc Ortega & Giovanni Peri, 2009. "The Causes and Effects of International Migrations: Evidence from OECD Countries 1980-2005," Working Papers 96, University of California, Davis, Department of Economics.
  12. Leah Boustan & Allison Shertzer, 2013. "Population Trends as a Counterweight to Central City Decline, 1950–2000," Demography, Springer, vol. 50(1), pages 125-147, February.

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