The Geographic Mobility of Heterogeneous Labour in Germany

Levels of interregional migration in Germany are relatively low in international comparison and may contribute to lower overall employment levels, lower economic growth and persistent regional employment disparities. Increasing levels of geographic mobility may thus be a means of realising potential welfare gains and reducing regional employment disparities. Against this background, the willingness and ability of unemployed individuals to seek employment elsewhere is of central concern if geographic mobility is to contribute to higher overall employment levels and to an accelerated regional convergence. The effectiveness of migration as a means of realising these desirable goals, however, depends on the heterogeneous disincentive and incentives that shape individual mobility decisions. The major objective of this empirically and microeconometrically oriented dissertation thus is to shed light on the determinants of individual mobility decisions for heterogeneous groups of unemployed. In particular, the thesis examines whether different groups of unemployed jobseekers adjust their search strategies to local labour market conditions. Such responsiveness to local labour market conditions is desirable if migration is to contribute to a reduction of regional employment disparities. Empirical results indicate that only skilled and well-earning individuals respond to unfavourable local labour demand conditions by higher levels of migration. As a next step, the thesis thus examines to what extent institutional factors such as active and passive labour market policies are responsible for the immobility of certain labour market segments. While the empirical results point towards a limited mobility-reducing impact of the local supply of active labour market programs, several results throughout the theses indicate that the unemployment compensation, especially prolonged entitlements to unemployment benefits as well as higher income replacement rates, noticeably reduce mobility levels. Since low-skilled unemployed tend to have very high income replacement ratios, the relatively generous unemployment compensation system in Germany could be one explanation for the low mobility level and weak responsiveness to regional labour market conditions among low-skilled unemployed. This thesis thus reveals institutional barriers to mobility, especially for low-skilled unemployed, and hence identifies some scope for increasing geographic mobility and realising some of the aforementioned welfare gains. In addition to the potential welfare gains from raising interregional mobility in Germany, there are also a number of possible downsides. Besides a potential loss of social capital due to the interruption of social networks that are important for the informal organization of child care and the care for the elderly, costs to the society may arise from the necessity to adjust the public infrastructure in net in-migration and net out-migration regions to the changing level and composition of the local population. In addition, the negative selection of those remaining in depressed regions in terms of age and qualification may undermine the future growth potential of these regions, thus triggering a self-reinforcing decline. Higher levels of interregional mobility may thus have a divergent rather than a convergent impact on the regional system. Policies to realise the potential welfare gains from higher levels of interregional mobility should thus be complemented by compensating social and economic policies that aim at mitigating its possible negative consequences. As a contribution to such a comprehensive policy approach, a second objective of this thesis is to provide insights on how to cushion one particular downside of a higher level of geographic mobility, namely its potentially divergent effect on the regional system. This is of high relevance given the net migration of skilled individuals from eastern to western Germany which may reinforce the existing regional employment and wage disparities between both parts of Germany. The thesis thus aims at identifying the scope for counteracting the brain drain in eastern Germany by empirically examining the factors that determine the skill composition of migration flows in Germany. For this purpose, the study looks at destination choices of heterogeneous skill groups. The findings indicate that spatial job matching patterns by high-skilled individuals are mainly driven by interregional income differentials, while interregional job matches by less-skilled individuals are mainly affected by interregional differentials in job-finding opportunities. Economic policy could thus contribute to reducing the brain drain from eastern Germany without raising east-west migration among less-skilled by creating the conditions for an increasing skill premium and stable unemployment levels for less-skilled workers. Besides measures for raising eastern productivity levels, regionally tailored wage agreements which allow for regionally higher levels of wage dispersion, may thus be a promising policy direction. This dissertation thus contributes to designing a comprehensive policy approach that, one the one hand, aims at reducing institutional disincentives in order to raise geographic mobility and realise its potential welfare gains and that, at the same time, tries to cushion the possible downsides of a higher level of interregional mobility.