Sunday, August 02, 2009

Procyclical Domestic Migration

Much to my surprise, the relationship between economic cycles and domestic migration is as counter-intuitive as the out-migration rates from Rust Belt states. More people move long distances during an economic upswing, particularly young adults. The image of Okies leaving the Dust Bowl is incorrectly informing our expectations:

More generally the national slowdown in economic activity may also be impeding inter-state migration. In investigating business cycles over the past 60 years, Raven E. Saks and Abigail Wozniak find that labor migration rates rise with cyclical upturns and fall with downturns, especially for younger working age people. These effects are independent of the degree of differences in inter-state economic conditions, and may reflect the shifting costs of job search and job matching that take place over the business cycle.

Out-migration during a recession is the exception, not the rule. If you think the brain drain is bad in Michigan now, just wait until the national economy begins to recover. That's when the labor market will undergo a massive restructuring.

Given the relative strength of the Pittsburgh region (see here and here), I expect the in-migration dividend to kick in during Q3 or in Q4. It depends on when the news of better times actually sinks into the heads of prospective migrants. Actually, there is some indication that the Pittsburgh magnet is already in play:

In Indiana County, the number of jobs was the same in June 2009 as in June 2008, the only county in our region that had no change in jobs in the midst of the recession. So why did its unemployment rate increase from 5.7% to 8% during the same period? Because the number of jobs is a net figure – Indiana County lost a total of 600 jobs in manufacturing, construction, and professional and other services, but it gained 600 jobs in trade, transportation, utilities, education, health services, leisure and hospitality, and government. Many of those who lost their jobs became unemployed, while some of the new jobs were likely filled by new residents of the county.

The overall bad numbers might be hiding positive trends. But can the region re-absorb displaced workers? Fast enough to keep them from leaving in search of a job? The latest energy boom suggests it can.

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