The Young Worker’s Migration Decision

946 The Journal of Human Resources labor supply through migration is thought to be an important channel through which relative outcomes are affected by local shocks Blanchard and Katz 1992. 3 If more- educated workers migrate to areas with greater labor market opportunity, migration will reduce the impact of poor local conditions on their outcomes. Bound and Holzer 2000 provide strong evidence of this pattern in the 1980s. My work shows that the greater responsiveness of more-educated workers is a more general phenomenon, observed here over 30 birth year cohorts in a model of individual location choice. I also show that all workers experience significant lasting wage impacts of conditions in the market they choose to enter and that workers respond to conditions in all possible choice states, not just their current market. This suggests that the finding of migration-induced wage arbitrage in Bound and Holzer 2000 and others may be sensitive to the particular measures of local conditions they use. My work also has implications for the “scarring effects” literature—papers that find medium- to long-run effects of prior labor market conditions on wages Ellwood 1982; Gardecki and Neumark 1998; Kletzer and Fairlie 2003; Kahn 2008; Ore- opoulos, von Wachter, and Heisz 2006. 4 Most of these studies find significant wage impacts of early conditions that last 5–10 years into a worker’s career. I find that scarring effects are still present even when workers are better at undertaking arbi- trage migration. Workers simply experience “scarring” consistent with the market they choose to enter. Moreover, using measures of entry labor market conditions targeted to particular education groups is key to this finding. 5 This has implications for theories of scarring effects Harris and Holmstrom 1982; Beaudry and DiNardo 1991. In particular, it suggests that the usual process of job transitions may be more important than migration for eroding the wage effects of initial conditions. 6 Finally, this paper also adds to our knowledge about educational differences in migration rates. The fact that higher education is a strong correlate with migration within the United States has long been established. Greenwood 1975 and Green- wood 1997 are just two examples. Malamud and Wozniak 2008 argue that there is a causal relationship behind this correlation. Little else is known about the origins of this differential.

II. The Young Worker’s Migration Decision

To understand how an individual chooses a local labor market, con- sider how she balances the costs and benefits to moving between markets. For a worker residing in state s, the choice problem is the following: 3. A literature that is similar in spirit examines the migration responses of the poor to state variation in benefits Meyer 2000; Gelbach 2004. In general the magnitude of these responses is fairly modest. See Kennan and Walker 2008 for a structural model of how expected future wages affect migration. 4. Oyer 2006 and Bender and von Wachter 2006 find scarring effects in more specialized labor markets. 5. This is likely the reason for the difference between my findings on this point and those in Genda, Kondo, and Ohta 2010. 6. Oreopoulos, von Wachter, and Heisz 2006 and Devereux 2002 find an important role for job tran- sitions in this “catchup” process. Wozniak 947 E we st t arg max U␻ ⳱arg max ␦ e ⳮc e 1s ⬆ s ⳮ␣e 1s ⬆ s 1 s 兺 s,st s,s 冦 冤 冥冧 p s 僆 S s 僆 S t st where ␻ indicates consumption; s,s forms a destination and origination state pair; s indexes the other 50 states; t indexes time periods; e indexes education groups; w is the nominal wage in state s, p is the price level in s; and ␦ is a discount rate that may depend on education. c and ␣ are recurring and one-time costs respectively that a worker must incur if he chooses to supply labor in a state other than his current state s. In theory these also may depend on education. The origins of fixed moving costs are fairly obvious—truck rentals, etc. Recurring costs include things like the psychic costs of being away from old friends and family or in an environ- ment where one does not feel like a “native” as well as the monetary costs of return visit travel or of maintaining a home with guest accommodations. If expected benefits from residing in some s exceed costs to moving from s to s , the worker moves across local markets. The probability that a worker makes such a move is increasing in the expected wages available in states s ⬆ s. To see this, simplify Equation 1 by assuming that the cost c is the same in every period and is independent of the destination and origin state pair s,s and of education. Assume that ␣ is similarly independent of the migration route and education and that prices do not differ across states. Then the probability that a worker chooses to supply labor in state s ⬆ s depends on conditions in s as well as conditions in all other states –s in the following way: Pr choose s ⬆ s⳱ 2 Pr Ewe ⳮcⳮ␣ Ewe and E we E we ∀s,ⳮs ⬆ s 兺 st 兺 st 兺 st 兺 ⳮst 冤 冥 t t t t This is now a standard choice problem, like those considered by McFadden 1974. 7 The McFadden choice framework offers a clear prediction about how in- creases in Ewe st should affect migration choices of utility maximizing agents— increases Ewe st in should increase the probability that state s is chosen by mem- bers of group e at time t, all else equal. The conditional logit model developed alongside this choice framework offers an empirical setting in which to test this prediction.

III. Data Series and Empirical Methodology