Panel Paper: Migration out of Low-Demand Areas: Who Leaves and Where Do They Go?

Thursday, November 8, 2018
Coolidge - Mezz Level (Marriott Wardman Park)

*Names in bold indicate Presenter

Raven Molloy and Christopher L. Smith, Board of Governors of the Federal Reserve System

Theory predicts that workers should leave areas with few economic opportunities and migrate to areas with stronger labor demand. As aggregate long-distance migrations rates in the US have declined, the possibility that it has become harder to move out of areas with low labor demand has become a topic of growing concern. We shed light on this issue by examining migration flows out of low-demand areas to document who leaves these areas, where they go, and whether these patterns are any different than migration out of higher-demand areas.

We begin by documenting the relationship between labor demand and migration flows. We measure labor demand as predicted employment growth from 2001 to 2016, based on the metropolitan area’s industrial composition in 2001. We examine average migration flows between metropolitan areas over this period using the IRS statistics of migration. We find that inflows tend to be lower in lower-demand metropolitan areas. However, and perhaps contrary to popular belief, outflows from low-demand areas are not lower than in higher demand areas. The fraction of the population moving into and out of low-demand metropolitan areas exhibits a modest downward trend over time, consistent with the aggregate downward trend in migration documented by previous research. However, these trends are not more pronounced for low-demand areas than for areas with stronger labor demand.

Who is more likely to leave low-demand areas? To answer this question, we use individual-level data from the American Community Survey and regress the probability that an individual migrates out of a metropolitan area on demographic and socioeconomic characteristics. Relative to areas with stronger labor demand, migrants out of low-demand areas are more likely to be younger and have at least 4 years of college. Thus, people with greater returns to moving to a high-demand area are more likely to leave. Homeowners are less likely to leave low-demand areas relative to higher-demand areas, suggesting that housing-related constraints may be preventing some individuals from moving out.

Finally, we examine where migrants from low-demand areas tend to move. We find that migration flows out of low-demand areas are not more heavily directed towards high-demand areas. We obtain this result because low-demand areas tend to be geographically concentrated people are more likely to migrate to nearby metropolitan areas. Conditional on distance, migrants out of low-demand areas are more likely to move to high-demand areas. Even conditional on demand and distance, migrants out of low-demand areas are more likely to move to areas with high home values. We attribute this result to the fact that high house values reflect positive local amenities and (unmeasured) strong local labor demand as well as a tight housing supply. When we include housing supply regulation and geographic constraints in the analysis, we find that migrants out of low-demand areas are less likely to move to high-regulation areas than migrants out of higher-demand areas. Thus, housing supply regulations do seem to impede migration out of low-demand areas more than they impede migration out of higher-demand areas.