S E IZA DP No. 8149 I R E S R E Declining Migration within the US: P The Role of the Labor Market A P N Raven Molloy O Christopher L. Smith I S Abigail Wozniak S U C S I April 2014 D Forschungsinstitut zur Zukunft der Arbeit Institute for the Study of Labor Declining Migration within the US: The Role of the Labor Market Raven Molloy Federal Reserve Board of Governors Christopher L. Smith Federal Reserve Board of Governors Abigail Wozniak University of Notre Dame, NBER and IZA Discussion Paper No. 8149 April 2014 IZA P.O. Box 7240 53072 Bonn Germany Phone: +49-228-3894-0 Fax: +49-228-3894-180 E-mail: [email protected] Any opinions expressed here are those of the author(s) and not those of IZA. Research published in this series may include views on policy, but the institute itself takes no institutional policy positions. The IZA research network is committed to the IZA Guiding Principles of Research Integrity. 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IZA Discussion Paper No. 8149 April 2014 ABSTRACT * Declining Migration within the US: The Role of the Labor Market Interstate migration has decreased steadily since the 1980s. We show that this trend is not primarily related to demographic and socioeconomic factors, but instead appears to be connected to a concurrent secular decline in labor market transitions. We explore a number of reasons for the declines in geographic and labor market transitions, and find the strongest support for explanations related to a decrease in the net benefit to changing employers. Our preferred interpretation is that the distribution of relevant outside offers has shifted in a way that has made labor market transitions, and thus geographic transitions, less desirable to workers. NON-TECHNICAL SUMMARY We follow-up our 2011 paper, which documented that migration between subnational labor markets in the US has declined for the last three decades. Drawing on a variety of data sources, we link this decline to fewer transitions between employers, industries and occupations among US workers. We rule out several other possible explanations, such as changing demographics, lock-in effects of employer-provided health insurance, and changing industrial structure. Our paper suggests that the employer-employee relationship in the US has changed over the last quarter of the 20th century in a way that keeps workers at their jobs and in a location longer. JEL Classification: J6, J1 Keywords: migration, migration decline, labor market transitions, job transitions, returns to tenure Corresponding author: Abigail Wozniak Department of Economics Flanner 441 University of Notre Dame Notre Dame, Indiana 46556 USA E-mail: [email protected] * Any opinions and conclusions expressed herein are those of the authors and do not indicate concurrence with other members of the research staff of the Federal Reserve, the Board of Governors, or the U.S. Census Bureau. All results have been reviewed to insure that no confidential information is disclosed. Wozniak would especially like to thank Frank Limehouse and the team at the Chicago Census Research Data Center for assistance with the restricted National Longitudinal Surveys. Ning Jia (University of Notre Dame) and Adam Scherling (Federal Reserve Board) also provided invaluable research assistance. The authors would like to thank Moshe Buchinsky and James Spletzer as well as seminar participants at Temple University, the University of Notre Dame, UW-Madison, University of Illinois-Chicago, UC-Santa Barbara, and conference participants at the Federal Reserve System conference on Regional Analysis, the 2012 Census Research Data Center Researcher conference, and the Society of Labor Economists. Any errors are our own. I. Introduction The decline in internal migration since the mid-2000s has attracted the attention of researchers and the public because it coincided with a dramatic housing market contraction and deep economic recession (Batini et. al. 2010, Frey 2009, Kaplan and Schulhofer-Wohl 2012). In earlier work, we demonstrated that the decline is in fact the continuation of a longer-run trend rather than solely a cyclical phenomenon (Molloy, Smith and Wozniak 2011). Specifically, internal migration within the United States has fallen continuously since the 1980s, reversing the upward trend that occurred earlier in the 20th century. Falling migration may be troubling if it is symptomatic of a broader decline in dynamism within the United States. Some have noted a secular downtrend in the amount of “labor market churning” (Davis, Faberman, Haltiwanger 2012; Hyatt and Spletzer 2013), and declining internal migration may be another product of the same underlying phenomenon. Perhaps less troubling, declining internal migration could simply be an expected outcome of demographic trends such as the aging of the population. The decline in migration might even warrant optimism rather than concern if it signals a diminished need for migration. For example, improved matching between individuals and their jobs and locations may have led to a more efficient allocation of workers across the US. In this paper, we assess explanations for the secular decline in migration, focusing on factors that may have played a role throughout the entire thirty year period.1 We begin by examining the correlation of migration with a number of demographic and socioeconomic factors in a simple OLS regression framework. For within-county migration, the decline in migration since the 1980s is reduced by half once we control for the age distribution of the population and homeownership. By contrast, the decline in interstate migration is mostly invariant to controlling for these factors, as well as to controlling for many other demographic and socioeconomic characteristics. Thus, the results point to a substantial drop in the probability of interstate migration that is common among all demographic and socioeconomic groups. We then proceed to investigate other explanations for the decline in long distance moves. Several pieces of evidence suggest that the labor market has played a key role in the migration decline. First, survey respondents report that interstate moves tend to be related to labor market reasons rather than other reasons, such as life-cycle events or housing-related factors. Second, other 1 We use the terms “secular” and “long-term” trend to emphasize that the decline in migration is not cyclical and has lasted for a considerable period of time. Of course, thirty years is still a relatively short period in the context of US economic history. Rosenbloom and Sundstrom (2004) document an increase in internal migration in the US from 1900 to 1970, which they attribute to rising educational attainment. 1 measures of churning in the labor market—specifically employer changes and industry and occupational mobility—have also trended down during this period and these declines are also not explained by changes in demographics. Third, we present evidence that labor market transitions, particularly employer-switching, and geographic mobility are strongly correlated at both the individual and state level. Finally, we show that adjusting for the downward trend in labor market transitions reduces the downward trend in interstate migration in a way that the demographic and socioeconomic factors do not. In sum, the descriptive evidence suggests that an explanation for the long-run decline in migration should be related to the labor market—in particular, the decline in labor market transitions—rather than to increased costs of migration or to compositional changes within the population.2 Because the decline in labor market transitions is apparent for workers who remain in the same state as well as for workers who change states, the most plausible explanations for the dual declines in labor market and geographic transitions are ones that are rooted in the labor market.3 Consequently, we examine a number of potential causes related to the labor market including changes in the distribution of employment across different types of occupations, a rise in the proportion of dual-earner households, and job-lock associated with rising health care costs. We find little empirical support for these hypotheses, leading to a more general theory that some costs or benefits of making a labor market transition have changed over time. In order to bring some evidence to bear on changes over time in the cost and benefits of making a transition in the labor market, we turn to data from three cohorts of the National Longitudinal Surveys (NLS) spanning the late 1960s to late 2000s. We find a decline in the wage gain associated with changing employers, but no change in the wage gain associated with staying at the same employer (i.e. the return to firm-specific tenure). We find qualitatively similar results in the Current Population Survey (CPS) and Panel Study of Income Dynamics (PSID). Although our evidence is only descriptive, it suggests that the distribution of the relevant set of outside offers has shifted in a way that makes labor market transitions—and hence geographic transitions—less desirable to workers. We push further on this idea by examining the relationship between wages and external labor market conditions, as in Beaudry and DiNardo (1991). Whereas the 2 Interstate migration has declined even for individuals where no one in the household is in the labor force, suggesting that some explanations unrelated to the labor market may also matter. However, this group is a small proportion of all migrants. 3 Moreover, migration flows are too small to account for the decrease in labor market transitions. 2 conditions that mattered most for wages in the 1980s and 1990s were the best conditions since a worker was hired, the conditions that mattered most for wages in the 2000s were those in the year of hire. This result suggests that the implicit contracts between workers and firms are renegotiated less frequently in recent cohorts. We lean towards an interpretation that relevant outside offers are less abundant for workers, reducing the frequency of job transitions. We can only speculate about the reasons for this change: perhaps workers’ shares of profits have become smaller or firms have become more homogeneous in their pay policies. It is also possible that assortative matching between workers and firms has risen, causing workers and firms to search for matches among a smaller set of possibilities. Regardless of the exact source, we conclude that he resulting decrease in job changing may have brought about a decline in long-distance migration as fewer people move to take a new job. In short, the most plausible reasons for the dual declines in geographic mobility and labor market transitions are ones that indicate a diminished benefit to making such transitions, not a higher cost of doing so. However, at this stage we view our evidence as intriguing, but speculative. As these trends seem to have become an enduring feature of the US economy, further research is needed to shed light on the mechanisms driving these declines. II. Is the decline in migration related to demographic and socio-economic trends? The long-run decline in migration can be seen clearly in Figure 1, which plots statistics from the Current Population Survey (CPS).4 Prior to the 1970s, annual migration rates fluctuated around a stable mean, with longer-distance moves less common than shorter-distance moves. During the 1970s, however, rates of moving across any distance began to decrease and declines since then have been dramatic. The rate of moving across a long distance has fallen by a larger percentage than the migration rate for short distances: the interstate migration rate in 2013 was 51 percent below its 4 The CPS provides the longest possible annual time series on migration rates for the post-war US. Details on the construction of this series can be found in Saks and Wozniak (2011). The CPS may overstate the decline in interstate migration since the 1990s due to a change in imputation procedures (Kaplan and Schulhofer-Wohl 2012, Koerber 2007). However, in this paper we exclude all imputed values of migration, and we show elsewhere that other data sources also show pronounced declines in migration over the last three decades (Molloy, Smith and Wozniak 2011). 3 1948-1971 average, while the rates of moving between counties within the same state and of moving within the same county fell 31 and 38 percent, respectively, over the same period.5 A natural explanation for the observed decline in migration is changing demographic or socio-economic trends, as they have slowly been shifting in favor of groups with lower mobility rates. For instance, the share of the population between the ages of 20 and 34 fell considerably from the 1980s to the 2000s, and these individuals tend to move more frequently than average across both short and long distances (see Table 1). However, migration rates for all age groups fell noticeably, suggesting that the age distribution of the population alone cannot explain the entire decline in migration. Another trend that has received much attention is the rise in homeownership, which could depress migration since homeowners are less mobile than renters. But the migration rates of both homeowners and renters fell from the 1980s to the 2000s (Table 1), suggesting that this trend cannot account for the aggregate decline either.6 We can more formally assess the importance of age and homeownership in accounting for the trend in aggregate migration by estimating an individual-level regression that pools data from all years and includes year fixed effects. The fixed effects reflect average migration in each year after controlling for the other variables in the regression. To illustrate, the upper panel of Figure 2 shows the coefficients of the year fixed effects from regressions of within-county migration including no controls (the solid line) and including controls for age and homeownership (the dashed line). The slope of the dashed line is noticeably flatter than that of the solid line; the solid line falls by 1.7 percentage points from the 1980s to the 2000s, while the dashed line falls by 0.8 percentage points. 7 Thus, declining shares of young people and renters can account for about half of the decrease in migration within counties over this period. The bottom panel of Figure 2 shows the same exercise where the dependent variable is interstate migration. In this case, the trends in the year coefficients are very similar. The solid line falls by about 0.9 percentage points from the 1980s to the 2000s, and the dashed line falls by 0.8 percentage points. Consequently, it seems that the trends in age and homeownership are less 5 Casual observation suggests that interstate migration may have flattened out from 2007 to 2013. However, migration in 2012 and 2013 was likely boosted by moves that otherwise would have occurred during the recession. In fact, the level of migration in 2013 is only slightly above that which would be predicted by a linear trend from 1991 to 2006. 6 One concern with these statistics is that the CPS does not record homeownership status in the previous year. However, using the PSID Bachmann and Cooper (2012) document declines in mobility among all four possible combinations of tenure: renter-renter, homeowner-homeowner, renter-homeowner and homeowner-renter. 7 The CPS did not include the migration question in 1985 or 1995. Prior to 1981, the CPS only asked migration questions in 1964-1971 and 1975. The data also contain far fewer relevant covariates in that time period; for example housing tenure was first asked in 1976. Therefore, it is not possible to extend the analysis of this section back to periods before the 1980s. 4 successful at accounting for migration over long distances than they are at accounting for migration over short distances. Intuition for this result can be seen in Table 1. Differences in migration rates across groups are greater for within county migration than for interstate migration, so the same demographic trends account for a larger share of the aggregate decline in within county migration. Of course, a number of other demographic and socioeconomic factors could be responsible for the decline in aggregate interstate migration. Ganong and Shoag (2012) find that a slowdown of low-skilled workers migrating to areas with high house prices can help to explain geographic wage convergence from 1980 to 2010. While the interstate migration rate of workers without a high school degree has slowed substantially, so have the migration rates of workers at all levels of education (see Table 1). Thus, including education in the regressions described above does not noticeably change the estimated year coefficients. A related possibility is that the decline in interstate migration could reflect a slowing in population flows across different regions of the country as many metropolitan areas in the South and West have become relatively more expensive. Indeed, Table 2 shows that net migration in the Pacific Census division (which comprises California, Oregon and Washington) switched from net inflows in the 1980s to net outflows in the 2000s. However, net migration patterns into other Census divisions have not changed much. Rather, in most divisions both inflows and outflows have decreased. To pursue the role of demographic and socioeconomic trends a little further, we include a large number of covariates in the regression described above: gender, educational attainment, race, marital status, presence of children, real income, and indicators for divorced heads with children, employment status, self-employment status, metropolitan area status, and Census division.8 As shown in Figure 2, these variables do not explain any additional portion of the declines in within- county or interstate migration. A rise in immigration is another important demographic trend over the last several decades, and immigrants are often thought to arbitrage wage and employment differences across local markets (Borjas 2001, Cadena and Kovak 2013). It is possible that the growing immigrant population has reduced the need for U.S. residents to respond to geographic labor market disparities by moving long distances. However, we think this possibility is unlikely because migration has declined even among native groups that do not typically compete in the same 8 Specifically, we control for real income with indicators for quintiles of the distribution across all years of household income relative to the consumer price index. Thus, shifts in the distribution of real income over time are allowed to affect aggregate migration rates. The regressions do not include nativity because this information is not available in the CPS until 1994. In earlier work, we found the declines in migration since 1994 were similar for natives and the foreign born (Molloy, Smith and Wozniak 2011). 5 labor market as immigrants, like the more educated. Moreover, in unreported analysis we have found that states with larger increases in new immigrants from 1980 to 2000 did not have larger declines in the fraction of in-migrants from other U.S. states. Of course, because these estimates are based on simple correlations and not on exogenous variation, one should be wary of making a strongly causal interpretation. To the extent that the coefficient for a given variable might be smaller than its true causal effect, our estimates will understate the role of observables in declining migration. (If for some reason the coefficient were larger than its true causal effect, our estimates – which are already small – would overstate the role of observables.) It is difficult to think of reasons the coefficients on observable characteristics in the migration regression would be biased downward by a large amount. For example, being young would have to be correlated with an unobservable characteristic that lowers migration. We therefore think these results suggest strongly that compositional changes among the variables in the regression are not the main causes of the trend in migration. Cooke (2011) and Kaplan and Schulhofer-Wohl (2013) also find that demographics and other observable characteristics can account for little of the decrease in interstate migration from the 1990s to the 2000s. In sum, a sizable portion of the downward trend in within-county migration is related to the aging of the population and the rise in homeownership whereas the trend in interstate migration is not related to these, or any other demographic and socioeconomic factors that we observe in the CPS. Consequently, we turn to other explanations for the decrease in long-distance migration over the past thirty years. III. Connections between migration and the labor market Migration is often linked to transitions in the labor market such as starting a new job or retiring from the labor force. This connection is particularly clear for migration over longer distances, which generally entails a change of local labor markets. Consistent with this notion, Figure 3 shows that CPS respondents most commonly cite job-related reasons as the explanation for an inter-state move, whereas these reasons are much less important among respondents who moved over shorter distances. Interestingly, job-related inter-state migration has trended down from 2000 to 2010 more noticeably than the other reasons. The reason for moving was not asked in years prior to 1999, so it is difficult to say whether the decrease in employment-related mobility since 1999 is part of a longer-run trend. 6 Over the same period that long-distance migration has trended down, many measures of labor market transitions have also been falling. In Figure 4, we plot the fraction of the population 16 and older that changed employers, changed industry, or changed occupation from the previous year.9 These statistics are all from the March supplement to the CPS.10 All three flows trended down from the early 1980s to the late 2000s.11 These trends are consistent with statistics compiled by Davis, Faberman and Haltiwanger (2012), who document downward trends in hires, layoffs and quits from 1990 to 2010 based on the Business Employment Dynamics (BED) database and the Job Openings and Labor Turnover Survey (JOLTS); with Moscarini and Thomsson (2007) who document a decline in occupation switching in the CPS since the mid-1990s; and with Hyatt and Spletzer (2013), who document declines in job creation and destruction, hiring and separation rates, and monthly job-to-job transitions since at least the mid-1990s in numerous sources (BED, Longitudinal Employer-Household Dynamics program, CPS, and JOLTS). Declining job transition rates may seem surprising given the popular perception that the firm-worker connection has become more tenuous and that the era of the “one employer career” has ended. Nevertheless, the decline in job transitions appears to be an empirical fact. For one thing, as noted above, it has been documented in multiple ways and in numerous datasets. Moreover, we have verified that the decline in job transitions in the CPS is consistent with data on tenure from the tenure supplement to the CPS (results available upon request). In particular, when we divide the sample into six age groups, for each group the fraction of workers with one year of 9 We estimate these transition rates using March CPS microdata as provided by the Unicon Research Corporation. The sample that we use drops individuals who have imputed values for occupation, industry, occupation last year, industry last year, or number of employers in the previous year. For 1988 and later, we also drop individuals who have any imputed responses for the March supplement as indicated by the “suprec” variable. We have found that this sample selection criteria corrects for discrete jumps in transition rates that appear in some years as well as for changes in the imputation of migration. Because the March CPS microdata provided by IPUMS do not allow users to correct for this form of imputation, we favor estimates derived from Unicon data. Occupations and industries are defined at the 3-digit level. 10 Similar to Stewart (2007), we measure job-to-job transitions based on the reported number of employers in the previous year. The exact question asked to the CPS respondent is “How many employers did you work for in the previous calendar year?” The CPS question further instructs that if the respondent worked for more than one employer at the same time, it should only count as one employer. Hence, respondents who report working for 2 or more employers in the previous year have likely transitioned across jobs at some point in the year. We also find a downward trend in job-to-job transitions when using the response to the question whether an individual is working for the same employer as in the previous month, which is available in the monthly CPS from 1994 onwards. 11 Although the rates of changing occupation and industry are quite similar, the workers who change industry are not necessarily the same as those who change occupation: from 1980-2010, about 15 percent of workers who change industry do not change occupation, and also about 15 percent of workers who change occupation do not change industry. 7