ABOUT
The ability to move in response to local economic shocks is a key channel through which such shocks are mitigated. Yet existing empirical evidence find very little migration in response to economic shocks, even in the presence of increased local unemployment. This project proposes and estimates a model of city choice in which households choose both a city and occupation simultaneously, with the possibility of occupational choice being correlated across cities. The estimated model is used to simulate migration response to local shocks, such as shocks to house prices or employment shocks due to international trade.
EXPECTED OUTCOMES
Almost all theoretical models currently assume that cities are equally substitutable. That is, a worker who is laid off from the auto industry in Detroit (MI) is as likely to move to Cleveland (OH) as they are to Los Angeles (CA), conditional on city size. This paper allows for the possibility of correlated choices, recognizing that households may have strong occupational preferences which influence their migration choices. A benefit of the model presented here is that it nests existing models and provides a simple empirical test of whether or not households do, in fact, exhibit correlated migration choices across cities. This paper aims to provide an empirical test of this hypothesis.
HOW IT RELATES TO THE STONE CENTRE’S MISSION
Recent advances in research highlight the role that geography plays in shaping income inequality. This project provides a novel framework for researchers and policymakers seeking to understand the general patterns of growth and decline in economic activity across geographies, and the potential difficulty in relying on migration as a means of mitigating economic shocks.