Working Paper: NBER ID: w22392
Authors: Emi Nakamura; Jsef Sigurdsson; JN Steinsson
Abstract: We exploit a volcanic “experiment" to study the costs and benefits of geographic mobility. We show that moving costs (broadly defined) are very large and labor therefore does not flow to locations where it earns the highest returns. In our experiment, a third of the houses in a town were covered by lava. People living in these houses were much more likely to move away permanently. For those younger than 25 years old who were induced to move, the “lava shock” dramatically raised lifetime earnings and education. Yet, the benefits of moving were very unequally distributed within the family: Those older than 25 (the parents) were made slightly worse off by the shock. The large gains from moving for the young are surprising in light of the fact that the town affected by our volcanic experiment was (and is) a relatively high income town. We interpret our findings as evidence of the importance of comparative advantage: the gains to moving may be very large for those badly matched to the location they happened to be born in, even if differences in average income are small.
Keywords: mobility shock; volcanic eruption; economic outcomes; comparative advantage
JEL Codes: E24; J61; O15; R23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Volcanic eruption (Q54) | Moving away from the islands (F29) |
| Moving away from the islands (F29) | Long-run labor earnings (J39) |
| Moving away from the islands (F29) | Educational attainment (I21) |
| Volcanic eruption (Q54) | Long-run labor earnings for individuals younger than 25 (J39) |
| Volcanic eruption (Q54) | Educational attainment for individuals younger than 25 (I21) |
| Moving away from the islands (F29) | Long-run labor earnings for individuals at the 95th percentile (J39) |
| Moving away from the islands (F29) | Long-run labor earnings for individuals 25 years and older (J39) |