Migration and market wage risk

The author presents an approach to the analysis of labor migration that incorporates the role of market wage variability as a source of information in individual migration decisions. "The focus...is on quantifying the effects of the origin market acting through amenities and the share of market-specific wage variability as it affects forecasts of alternative wages and forecast precision. A subsample of employed males...from the [U.S.] National Longitudinal Survey of Youth (NLS) age 16 to 22 years is used for estimation. The empirical results are consistent with the theoretically predicted relationship between migration propensities and regional differences in the information content of wages. In addition, the results provide evidence that risk aversion deters migration given uncertainty, measured by forecast precision, about alternative market wage levels."     

LOCATION‐SPECIFIC HUMAN CAPITAL,LOCATION CHOICE AND AMENITY DEMAND*

ABSTRACT The role of amenities in the flow of migrants has long been a subject of debate. This paper advances an original model of amenities that work through household production instead of directly through utility. Area characteristics (amenities) affect household production, causing certain kinds of human capital investments to be rewarded more than others. Area heterogeneity thus makes such investments location‐specific. This specificity—along with a period of exogenous location—increases the opportunity costs of moving, diminishes migration flows between dissimilar locations and increases valuation of amenities that were present in the originating area. These theoretical results emphasize people's sorting across areas and thus differ from the results of the standard model of compensating differentials. Empirical tests of the model's predictions using NLSY79 data show that childhood investments affect migration flows in the way proposed by the model.     

SOMETIMES CLOSE IS GOOD ENOUGH: THE VALUE OF NEARBY ENVIRONMENTAL AMENITIES*

ABSTRACT An extensive empirical literature exists, showing that variations in region‐specific amenities can account for persistent differences in real wages across regions. However, this literature has considered only amenities in the same location as the household. This paper argues that environmental amenities at some distance from but accessible to urban areas may lead to negative compensating wage differentials. We use a general equilibrium framework and data from the 1995 Current Population Survey to calculate implicit amenity prices based on measures of distance to environmental amenities. Our results suggest that amenities outside the metropolitan area do generate compensating wage differentials, as workers are willing to accept lower wages to live in accessible proximity to “nice” places. This implies that these places provide a positive externality to those communities that find them accessible. The estimated effects are quantitatively important, suggesting that these externalities should be taken into account in policy making.     

Do Urban Agglomeration Effects and Household Amenities have a Skill Bias?*

There are several hypotheses why urban scale affects wages. Most focus on agglomeration economies that increase labor demand, especially for high‐skilled workers (e.g., dynamic externalities stress knowledge transfers, and imply the urban wage gap favors skilled workers). Others stress urban amenities that increase labor supply and decrease wages. Amenities should have a stronger influence on affluent households if they are normal goods. By examining whether urban‐scale affects net returns to education, it can be determined whether skilled workers are influenced more by urban productivity or amenities. Empirical results suggest net returns to education decline with urban scale, implying a key role for urban amenities in affecting skilled workers.     

VALUING AMENITIES AND DISAMENITIES OF URBAN SCALE: CAN BIGGER BE BETTER?*

ABSTRACT. Considerable effort has been devoted within the recent literature to the valuation of urban amenities and disamenities, as well as to econometric procedures required for the estimation of their implicit market “prices.” This study questions the equilibrium conditions invoked within this literature to derive estimates of marginal willingness to pay, conditions premised upon “perfect” labor mobility among cities. It is shown that such assumptions need not be invoked if one considers the amenity price-mobility relationship directly. This is accomplished by appending a binary migration model to a first-stage wage equation, a procrdure that provides estimates of willingness to pay that can diverge from market-determined implicit prices. Comparison of such values yields important information on the adequacy of market compensation for disamenities (amenities) throughout metropolitan areas.     

Regional labor markets and the household migration decision

"The current work extends the modeling of the household migration decision to take into account location-specific influences and relates these to regional wage differentials. This allows for more complete analysis of real wage gains or losses associated with migration and inferences regarding the nature of equilibrium or disequilibrium wage differentials between regions." Data are from the Michigan Panel Study of Income Dynamics for the period 1976-1978. "The results indicate systematic and often substantial influences of household location on the nominal wage and on both job and residence mobility. Based on these findings, comparisons of wage growth patterns are made for those changing jobs and region of residence status. Although compared to other households the wage growth of these migrants is on average lower before migration and higher after migration, the analysis provides no support for arguments that nominal regional wage differentials reflect systematic ordering of real wage differentials. This finding suggests that real wage gains are closely tied to the interregional migration decision but are not related to regional nominal wage differentials in a simple fashion."     

A Life‐cycle Model of Locational Choice in a Two‐region Economy*

The ability to use the amenities or other characteristics of a location may be a function of the length of time a household has resided in the location. We explore the implications of the hypothesis that the enjoyment of regional amenities depends on the accumulation of amenity‐specific human capital. We establish that the interaction of this human capital with regional wage rates determines life‐cycle locational trajectories. The model explains the timing of moves in the working and retirement periods of life as well as observed heterogeneity in household behavior. Small differences between households may result in dramatically different life‐cycle behavior.     

Types and Patterns of Later-life Migration

This paper refines previous typologies of later-life mobility by explicitly evaluating the spatial migration patterns and household characteristics of retired American migrants. Migrants' lifecourse attributes (economic status, disability, presence of spouse), large-scale migration patterns (internal migration) and household characteristics (living arrangements, economic independence, residential independence) are used to identify three types of post-retirement mobility. The first type, amenity migration , has a distinctive spatial pattern that suggests a search for attractive climate and leisure amenities. The second type of mobility, assistance migration , can be traced to low income and the absence of a spouse in the household. It often results in residential and economic dependence – specifically, in co-residence with adult children or other labor force members. The third type of mobility, migration in response to severe disability and spouse absence , tends to result in nursing home residence. While amenity migration has long been associated with good health and favorable economic status, this analysis reveals that many disabled and lower-income retirees share the inmigration pattern typical of amenity migrants. In fact, amenity migration is the predominant type of mobility among those migrants with fewer than two unfavorable lifecourse attributes (low income, severe disability and spouse absence). Unlike previous lifecourse typologies, this study shows no clear relationship between moderate disability and co-residence with adult children. The results suggest that co-residence is primarily a strategy for reducing living costs rather than a means of coping with moderate disability.     

U.S. North-South labor migration and trade

The authors examine the roles of labor migration and commodity trade in the inter-regional equalization of the real wage rate in the United States. The emphasis is on North-South patterns. Theoretical models are first outlined and then tested using 1960 and 1970 census data and multi-regional input-output data for 1963. It is found that "the pattern of trade-embodied labor flow closely resembled the pattern of direct labor migration." It is also noted that "the South's hierarchical profile of relative plentifulness among age, education, and race-specific categories of work force tended to persist and remain fairly stable between 1960 and 1970.... One plausible hypothesis is that interregional commodity trade is accomplishing the bulk of the requisite adjustment in bringing about the real wage equalization."     

Time,hedonic migration,and household production

"A hedonic migration model is developed where regional amenities are viewed as influencing household production within the framework of the new demand theory. The inputs to household production are goods, time and housing. It is shown that economic growth in the economy as a whole will increase the relative attractiveness of regions that are relatively time-saving, in the sense that they have a lower time elasticity of household production. Hence, migration will flow into time saving regions and housing costs in those regions will rise as real GDP grows." The implied geographical focus is on the United States.     

AMENITIES VERSUS LABOR MARKET OPPORTUNITIES: CHOOSING THE OPTIMAL DISTANCE TO MOVE*

ABSTRACT. A recent debate in the regional economics literature has focused attention on the motivation behind an individual's decision to migrate. Human-capital migration models emphasize labor market disequilibria whereas alternative (hedonic) migration models stress households’altered demand for nontraded goods. In this paper, we test the relative importance of these two possible motivations for moving between metropolitan areas. We use an intercity hedonic model to decompose wages into equilibrium and disequilibrium components. We then compare the separate influences of amenities and the disequilibrium component of wages on the distance moved between two metropolitan areas. Our findings indicate that both economic factors and amenity differentials are significant factors in explaining regional migration.     

THE NATURE OF THE MANPOWER PROBLEM IN THE DEVELOPMENT OF SIBERIA

The traditional picture of the economic development in Siberia presents a formidable obstacle in the form of a manpower deficit and high labor turnover. The official policy to combat this problem has been to give priority to the development of social and cultural amenities. Substantial changes in wage differentials and other economic and non-economic benefits seem to be a measure of the past. This article presents an overview of the situation and suggests that if any public policy is to be effective, it has to combine accelerated development in the social and cultural spheres and economic and noneconomic benefits as well. Furthermore, these measures have to be more differentiated regionally and among worker categories. Any such policy would require massive investment. The question is whether Soviet society can bear this huge burden in view of more immediate needs. Another question is whether the additional investment required would be compensated by a comparable increase in the productivity of labor. In view of substantial cost increases, capital productivity is likely to decline if not compensated by a change in the calculated prices on Siberian products, especially oil and gas, which seems doubtful in view of the present international situation.     

SPATIAL HETEROGENEITY AND THE WAGE CURVE REVISITED*

ABSTRACT Most “wage curve” studies ignore the geography of local labor markets. However, when a local labor market is in close proximity of other labor markets, a local shock that increases unemployment may not lead to lower pay rates if employers fear outward migration of their workers. Hence, the unemployment elasticity of pay will be greater, the more isolated the local labor market is. Wages are also expected to be higher in regions that interact strongly with other regions. These hypotheses are confirmed by means of an estimation of wage curves with data for 327 regions of western Germany over the period 1990–1997.     

The Impact of a Customs Union with the European Union on Internal Migration in Turkey

Abstract The impact of the recent Customs Union (CU) agreement between Turkey and the European Union on internal migration is studied using an intra‐industry trade Computable General Equilibrium (CGE) model with intersectoral capital mobility under two alternative specifications for the labor market: the traditional Harris‐Todaro approach and the existence of a “wage curve” in the urban sector. Under both specifications, the numerical results show that the CU is welfare enhancing and causes a reduction of the urban‐rural wage gap as suggested by theoretical studies. At the same time, it leads to rural‐to‐urban migration and raises the capital rent, results that are counter intuitive with respect to the dual economy literature. Furthermore, the rise in formal labor demand and the migration response to the CU have not resulted in an increase in urban unemployment (i.e. the “Todaro paradox”), but rather to a fall in the unemployment pool. The study also shows that the Bhagwati‐Srinivasan proposal of maximizing welfare by uniformly subsidizing the entire labor market is impracticable, especially if the high wage union sector can negotiate employment conditions.     

POPULATION DISPERSION VS. CONCENTRATION IN A TWO‐REGION MIGRATION MODEL WITH ENDOGENOUS NATURAL AMENITIES*

ABSTRACT Contrary to the predictions of the basic spatial equilibrium model, the long‐run distribution of population across rural U.S. counties with high‐valued natural amenities has become relatively more concentrated versus dispersed. We provide an explanation by developing a two‐region model with mobile labor, production externalities and endogenous natural amenities. We find that strong preferences for natural amenities generally foster population dispersion. However, such preferences can also lead to population concentration when ecological degradation is low and man‐made capital is a relatively scarce input into natural amenity production. Investments that enhance natural amenities are found to reduce the divergence between the steady state and optimal outcomes.     

Contemporary Migration in the USSR

The predominance of individual migration and a lack of coordination among government agencies result in a situation in which migration in the USSR often works at counter-purposes, with people moving away from areas suffering from a labor shortage and into areas with a labor surplus. A system of economic measures is advocated to optimize Soviet migration patterns. Since differences in living conditions are the basic motive between migration, an effort should be made to establish relationships between region al living standards that would attract migrants to regions with a labor shortage and induce them to settle permanently, instead of taking temporary advantage of high wage rates.     

WAGES,RENTS, UNEMPLOYMENT,AND THE QUALITY OF LIFE: A CONSISTENT THEORY‐BASED MEASURE

Combining a spatial equilibrium model with a search‐matching unemployment model, this paper analyzes the willingness to pay for regional amenities and the regional quality of life when wages, rents, and unemployment risk compensate for local amenities and disamenities. The results are compared with those obtained from the Rosen‐Roback approach. We demonstrate that the traditional approach gives too much weight to the wage differential if search frictions are significant. Furthermore, the paper confirms that the wage curve is negatively sloped for quasi‐linear utility. Specifically, the wage rate increases and the unemployment rate decreases in response to an increase in the amenity level if the amenity is marginally more beneficial to producers than to consumers.     

On the role of amenities in models of migration and regional development

"The role of location-specific amenities in human migration decisions, and subsequently regional development, is explored. A framework is developed which motivates a new assessment of existing alternative models of regional development, indicating the need for additional modeling efforts which focus upon amenities as critical elements in such analyses. The approach hinges upon the notion that amenity values are capitalized into wages, rents, or other local prices. This process of capitalization enables researchers to explore the implicit value that society places upon amenities, which can then be used in assessing future regional-development trends in a more comprehensive manner."     

Spillover Effects of Welfare Reforms in State Labor Markets

This paper estimates the effects of welfare reforms on a state's employment and wage rates. Welfare reforms include: pushing welfare recipients into the labor force, financial incentives to recipients for working, wage subsidies to employers of recipients, and community service jobs for recipients. The effects of these policies are analyzed using a newly estimated model of state labor markets. Simulations show that jobs found by welfare reform participants cause sizable displacement effects for nonparticipants. Displacement effects of labor supply policies are highest when a state's unemployment is high, whereas displacement effects of labor demand policies are highest when a state's unemployment is low.     

Location choice,life cycle and amenities

Our study proposes a housing location choice model where a household faces a trade‐off between proximity to place of employment and proximity to amenities. We consider subsamples of high amenity cities and low amenity cities and households with and without children. We show that the roles of gender, education, homeownership, household composition, and public transportation vary significantly depending on level of amenities. Households with a female head of household, those with a working spouse and with older children prefer locating closer to downtown amenities. Female workers with and without children locate closer to work, in high and low amenity cities.