Working Paper: NBER ID: w22158
Authors: Melanie Morten; Jaqueline Oliveira
Abstract: How integrated are labor markets within a country? Labor mobility is key to the integration of local labor markets and therefore to understanding the efficacy of policies to reduce regional inequality. We present a comprehensive framework for understanding migration decisions, focusing on the costs of migrating. We construct and then estimate a spatial equilibrium model where mobility is determined not only by idiosyncratic tastes, but also by moving costs that are origin-destination dependent. We use rich data on the inter-municipality moves of 18 million people together with exogenous variation in the road network caused by the construction of a capital city to identify the bilateral costs of moving between two regions. The mean observed migration cost is between 0.8-1.2 times the mean wage. 84% of the migration cost is a fixed cost, 3.5% depends on the distance between locations, and 9.6% is dependent on the travel time on the road. This imperfect integration of labor markets has two key implications. First, costly migration generates heterogeneity in regional responses to economic shocks. A region 10% more connected will have a 5.6 percentage point higher population elasticity to wage shocks. Second, costly migration changes the incidence of regional shocks. We estimate that 37% of the total incidence of a shock falls on residents, compared to 1% in a model where migration is costless. Our results have important implications for understanding the impact of economic development as well as the impact of place-based development policies.
Keywords: migration; labor market integration; regional inequality; Brazil
JEL Codes: J61; O18; O54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher migration costs (F22) | lower migration rates (J61) |
| costly migration (F22) | heterogeneity in regional responses to wage shocks (J69) |
| better connectivity (D85) | better absorption of economic shocks (F69) |
| higher migration costs (F22) | disproportionate incidence of economic shocks on local populations (F69) |
| migration costs (F22) | regional inequalities (R11) |