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Friday, March 20, 2009

"The Cyclicality of Geographic Mobility"

Chris Nekarda disagrees with Connor Dougherty's assertion that geographic mobility is procyclical, i.e. that more people move when times are good than when times are bad:

Cyclicality of Geographic Mobility, by Chris Nekarda: Connor Dougherty discusses a dramatic decline in geographic mobility during 2008 (via Economist’s View):

U.S. Migration Falls Sharply, by Conor Dougherty, WSJ: Migration around the U.S. slowed to a crawl last year, especially for this decade’s boom towns, as a weak housing market and job insecurity forced many Americans to stay put. ...

<p>HTML clipboard</p>As asset values rose fairly steadily in the past decade, Americans young and old moved around the country in search of jobs or better weather. In many cases, people living in higher-cost housing markets such as San Francisco and New York cashed in their real-estate winnings and moved to outlying counties, or to states like Florida and Nevada, hoping to find a cheaper house and pocket the difference. Now, “people are hanging tight; they’re too scared to do anything,” said Mr. Frey.

Migration typically slows during recessions. But in past downturns, the slowdown has been more regional in scope, with workers fleeing weaker job markets for places where companies were still hiring. In the deep 1980s recession, for instance, laid-off auto workers fled the industrial Midwest for energy-rich states in the South with more plentiful jobs.

What’s unique this time is migration has slowed almost everywhere. The sharpest year-to-year changes were among what demographers call “domestic migrants,” people who moved within the U.S. That doesn’t count population changes that result from births, deaths or immigration.

Although I agree with the trend behavior described above, Dougherty is incorrect about the cyclicality of geographic mobility. In fact, geographic mobility is moderately countercyclical—that is, more people move during recessions than during booms (relative to trend). This may seem counter-intuitive but makes economic sense.

Geographic mobility is a means of reallocating resources, in this case labor, to more efficient uses. In the past, 70 percent of people who move indicated having moved for economic reasons and up to 50 percent of those moves occurred because of a job separation [Lansing and Morgan (1967); Bartel (1979)]. In particular, there is a significant positive relationship between unemployment and geographic mobility [Bartel (1979); Schlottmann and Herzog Jr. (1981, 1984)]. Thus, countercyclical mobility is consistent with reallocation of idle workers across space.

I assess the cyclicality of geographic mobility in a recent working paper. I the measure the rate of geographic mobility as one minus the share of persons living at the same address one year later reported by the U.S. Census Bureau. These data come from the March supplement to the Current Population Survey, so the 2007 data do not reflect much of the distress in mortgage markets—and any concomitant effects on mobility—that began later in 2007.

Removing the low-frequency trend is important because it represents structural changes—such as demographic changes or, say, innovations in mortgage finance—that are unassociated with the business cycle. I isolate the component of the time series that moves at business cycle frequency using an unobserved components model (see paper for details). The figure below plots the cyclical component of the mobility rate together with that of the unemployment rate for comparison.

Nekarda

The cyclical component of mobility tends to follow the unemployment rate, indicating that more people move during recessions than during booms. This is consistent with geographic mobility as a means for reallocating idle labor to more productive uses. The contemporaneous correlation of the cyclical component of the mobility rate with the unemployment rate is 0.50, indicating moderate countercyclicality. Also note that mobility is substantially less volatile over the business cycle than unemployment.

Of course, the problems in the housing market beginning in 2007, notably the dramatic decline in prices, will undoubtedly reduce geographic mobility during this recession. This will further slow recovery because unemployed persons cannot move to areas with more favorable labor markets as easily or quickly as before.

    Posted by on Friday, March 20, 2009 at 08:10 PM in Economics, Housing, Unemployment | Permalink  TrackBack (0)  Comments (9)

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