Economic Shocks and Internal Migration by Joan Monras

Economic Shocks and Internal Migration by Joan Monras

Economic shocks significantly influence internal migration patterns, particularly in the context of the Great Recession. Joan Monras explores how in-migration rates are more responsive to local economic conditions than out-migration rates. The study employs a dynamic model to analyze the effects of these shocks on welfare across various metropolitan areas. Findings indicate that approximately 60% of the initial economic disparities dissipate within ten years due to internal migration. This research is essential for understanding labor market dynamics and regional economic resilience.

Key Points

  • Analyzes the impact of the Great Recession on internal migration patterns
  • Demonstrates that in-migration rates respond more to economic shocks than out-migration rates
  • Employs a dynamic model to evaluate welfare changes across metropolitan areas
  • Finds that 60% of initial economic disparities dissipate within ten years
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Economic Shocks and Internal Migration
Joan Monras
∗
Universitat Pompeu Fabra, Barcelona GSE, and CEPR
May 15, 2020
Abstract
Internal migration can respond to local shocks through either changes in in- or out-migration
rates. This paper documents that most of the response of internal migration is accounted for
by variation in in-migration. I develop and estimate a parsimonious multi-location dynamic
model around this fact. I then use the model to evaluate the speed of convergence and long
run change in welfare across metropolitan areas given the heterogeneous local incidence of the
Great Recession. Results suggest that while there are some lasting effects of the Great Recession
across locations, around 60 percent of the initial differences potentially dissipate across space
within 10 years. This is true even when locals from the most affected metropolitan areas do
not out-migrate in higher proportions in response to local shocks.
Keywords: Internal migration and local labor market dynamics.
JEL Classification: J61, J20, J30, F22, J43, R23, R58
∗
Correspondence: jm3364@gmail.com. I would like to thank Don Davis, Eric Verhoogen and Bernard Salanié for
their guidance and encouragement and Paula Bustos, Lorenzo Caliendo, Jan Stuhler, Jesus Fernández-Huertas, Brian
Kovak, Florian Oswald, Michel Serafinelli, Jón Steinsson, and seminar participants at Bocconi, CEMFI, UC Louvain,
IIES, TGIN workshop at UCLA, FREIT-RMET workshop, FREIT-EIIT workshop, CEPR/IZA-ESSLE, CEPR-ECB,
Copenhagen Business School, Barcelona GSE Summer Forum and ITAM for useful comments and discussions. This
work is partially supported by a public grant overseen by the French National Research Agency (ANR) as part of
the “Investissements d’Avenir” LIEPP program (reference: ANR-11-LABX-0091, ANR-11-IDEX-0005-02). Funding
from the Fundación Ramon Areces is also appreciated. All errors are mine.
1
1 Introduction
A common perception is that “Americans have historically been an unusually mobile people, con-
stantly seeking better economic conditions” (Moretti, 2012). We would thus expect geographic
relocation to be an important mechanism for American families to deal with periods of economic
crisis. The main goal of this paper is to accurately quantify the shape and importance of internal
migration in dissipating local shocks.
To do so, I first document extensively that in-migration rates respond more than out-migration
rates to economic shocks. In other words, if a location is hit by a negative shock, the number of
workers who move to that location strongly diminishes. In contrast, the number of people who
leave the affected location does not increase significantly.
I document this fact using a number of alternative and complementary strategies. First, using
insights from Mian et al. (2013) and Mian and Sufi (2014), I identify local labor demand shocks
during the Great Recession that vary in intensity across metropolitan areas. Indeed, metropoli-
tan areas where households were more indebted prior to the Great Recession had to cut back
significantly more on their consumption and this in turn affected local non-tradable employment.
Thus, metropolitan areas where households were indebted and where the share of employment in
non-tradable sectors was high prior to the crisis experienced larger falls in local labor demand. I
use this variation to document the internal migration response during the Great Recession. Clear
patterns emerge: a 1 percent decrease in wages led to a decrease in the net in-migration rate of
around .2 percentage points. This estimate is similar to what provided in Carrington (1996) using
the Trans-Alaska Pipeline construction. Relative to Carrington (1996), and many other papers in
the literature, I distinguish between the response in in- and out-migration rates. In this paper I
document that this decrease in net in-migration was entirely driven by a decline in the in-migration
rate, with little response of the out-migration rate. This distinction is important for how we should
model internal migration, as I explain below.
The fact that in-migration explains most of the variation in internal migration is in fact a very
general feature of internal migration in the United States. To show this, I decompose population
growth rates across locations into in- and out-migration rates.
1
Using all publicly available datasets
on Ipums for the US and a number of different geographic aggregations, I show that most of the
variation in population growth rates is accounted for by variation in in- rather than out-migration.
This suggests that the response of internal migration during the Great Recession followed a pattern
similar to other unobservable local shocks and helps to establish a stylized fact.
The second and arguably main contribution of this paper is to develop a parsimonious quan-
1
More specifically, for each sample of the Current Population Survey, the Census, and the American Community
Survey, each surveyed individual reports her current and past location of residence. Thus for a given point in time it
is possible to reconstruct entire migration patterns for the surveyed individuals in that year. We can then use this to
decompose population growth rates across location of the cohort surveyed at time t into in- and out-migration rates.
2
titative general equilibrium dynamic model with multiple locations around this stylized fact. The
model assumes that in each period, each worker decides where to live given: a) current and future
housing and labor market conditions in an arbitrary number of potential destinations, and b) an
idiosyncratic taste shock. This idiosyncratic taste shock captures taste heterogeneity for mobility
and is drawn from a nested logit distribution. This nesting structure captures the fact that the
home location is special: workers in the model are more reluctant to substitute away the location
where they currently live than to substitute among two potential alternative new destinations.
This assumption on how to model internal mobility allows to decompose the flows of workers
between any two locations between the (endogenous) share of workers who move away from their
original location and, among those, the share who choose each particular destination. This fully
characterizes the entire matrix of flows between locations in an economy. It also makes the home
location a more likely candidate for the following period’s location, something that is crucial in
order to match the empirical regularity that in equilibrium internal migration is relatively low –
only around 5 percent of the population relocates to a different metropolitan area each year. This
modeling choice plays a similar role to the fixed costs of mobility introduced and estimated in
Kennan and Walker (2011) but makes the model very tractable.
2
Furthermore, there are a number of features of the model that make it attractive, both for
analytical study and for estimation. First, the population dynamics can be summarized in a very
simple and intuitive equation despite the complexity of having many potential current and future
destinations.
3
In each location, the population in the following period is a weighted average between
a) the indirect utility of living in that location relative to all other potential destinations, and b)
the current size of the location. Thus, a simple equation per location fully characterizes (the sticky)
population dynamics of the many locations in the economy and allows for an examination of the
determinants of the speed of convergence to the new steady state. This simple equation allows me
to show that the speed of convergence depends crucially both on the sensitivity of internal migration
and on local congestion forces. The model makes very explicit the idea that reduced migration to
one location is a labor supply shock – or increased competition for housing – in another location,
as discussed in the seminal work of Topel (1986).
Second, the model is particularly suited to studying welfare. Long run changes in the value
across locations can also be summarized in a simple and intuitive equation. The assumptions of
the model imply that the change in the long run value of a location equals the change in the
2
In Appendix D, I compare the model presented in this paper with a model where the idiosyncratic taste shocks
are drawn from a logit distribution and there are fixed costs of moving, showing that differences are small. I also
show how moving costs need to be high to match the findings in this paper. Papers using fixed costs of moving
include the seminal contributions of Kennan and Walker (2011) and Artuc et al. (2010).
3
Given the simplicity of the dynamics generated, this methodological innovation can potentially be used in a
number of different contexts. For example, the model presented in this paper can be used to endogenise the share of
firms that decide to set-up new prices in a sticky price model Calvo (1983). See also Clarida et al. (2000) and Gali
(2015).
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FAQs of Economic Shocks and Internal Migration by Joan Monras

How do economic shocks affect internal migration rates?
Economic shocks, such as those experienced during the Great Recession, lead to significant changes in internal migration patterns. The research shows that in-migration rates decline sharply in response to negative local economic conditions, while out-migration rates remain relatively stable. This indicates that individuals are less likely to leave a struggling area than to move into it, highlighting a unique aspect of migration behavior during economic downturns. The study provides a framework for understanding these dynamics through a multi-location model.
What is the main finding regarding the response of in-migration rates?
The main finding of the study is that in-migration rates are significantly more responsive to local economic shocks than out-migration rates. Specifically, a 1% decrease in local wages corresponds to a 0.2 percentage point decrease in the net in-migration rate. This response underscores the importance of in-migration as a mechanism for adjusting to economic conditions, suggesting that internal migration plays a critical role in mitigating the effects of local economic downturns.
What methodology does Joan Monras use in this research?
Joan Monras employs a parsimonious dynamic model to analyze the relationship between economic shocks and internal migration. The model allows for the decomposition of migration flows into in-migration and out-migration rates, providing insights into how these rates react differently to local economic conditions. By utilizing data from the Great Recession, the model evaluates the speed of convergence and long-term welfare changes across metropolitan areas, offering a comprehensive understanding of labor market dynamics.
What implications does this research have for understanding labor markets?
This research has significant implications for understanding labor market dynamics, particularly in the context of economic shocks. It highlights the critical role of internal migration in adjusting to local economic conditions and mitigating disparities across regions. The findings suggest that policymakers should consider the responsiveness of in-migration rates when addressing labor market challenges during economic downturns. Additionally, the study emphasizes the need for strategies that facilitate mobility and support affected populations.
How does the study measure the long-term effects of the Great Recession?
The study measures the long-term effects of the Great Recession by analyzing changes in welfare across metropolitan areas over a ten-year period. It estimates that approximately 60% of the initial economic disparities dissipate due to internal migration, indicating a significant adjustment process. By employing a dynamic model, the research captures the transitional dynamics of population movements and their impact on local economies, providing a framework for evaluating the resilience of labor markets in the face of economic shocks.

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