LOCAL UNEMPLOYMENT IN THE UK: The impact on inward and outward migration

12 Apr 2019

Unemployment in a local area in the UK induces people to move away and scares off potential incomers in roughly equal measure. That is the central finding of research by Monica Langella and Alan Manning, to be presented at the Royal Economic Society's annual conference at the University of Warwick in April 2019. Their study also finds that distance plays a big role in explaining patterns of UK residential mobility, and that most of the action is within very short distance.

 

The UK has suffered from persistent regional differences in unemployment rates for many decades. A low responsiveness of internal migration to unemployment is often argued to be an important cause of this problem.

 

The new research uses UK census data to investigate how unemployment affects residential mobility. The authors consider both in-migration and out-migration separately, identifying very small areas as potential destinations and origins. The work covers four decades of moving flows, and it carefully takes account of the role of distance.

 

The researchers find that worse economic conditions in an area affect mobility in two ways. They decrease the probability of moving there and increase the probability of moving away from there. The magnitude of the two effects is comparable. The probability of moving to a particular location is strongly affected by the distance from the previous location.

 

There is renewed interest in understanding regional inequalities in economic outcomes, as these seem remarkably persistent in many countries. Voters in ‘left behind’ areas seem to have played to play an important role in the Brexit vote and the election of Donald Trump.

 

One of the main forces that economists expect to equalise economic opportunity across areas is migration: individuals leaving depressed areas for booming areas. There is strong evidence that migration does respond to differences in economic conditions, but the speed of response and its dynamics have been debated.

 

The contribution of the new work goes in two main directions. First, the researchers investigate whether differences in economic opportunity across areas is a more important driver of in-migration or out-migration. In other words, are people more likely to leave areas of high unemployment (an out-migration effect) or, given mobility, are they less likely to move to areas of high unemployment (an in-migration effect)?

 

This is a question with a long pedigree (Greenwood, 1997), but recent work (Coen-Pirani, 2010; Monras, 2018) has argued, based on aggregate US data, that in-migration is more sensitive to economic conditions than out-migration.

 

The new study develops a way of modelling and estimating a model of in- and out-migration when there are a very large number of potential destinations. In their small areas setting, the researchers find that economic conditions affect both in- and out-migration.

 

Their findings suggest that unemployment induces people to move away, and at the same time it scares off potential movers. The two effects are mirroring in size.

 

The second contribution of the new study is to consider very detailed information on location. Most of the moving is in fact within short distances, at least in the UK, which means that analysing data at a higher level of geographical agglomeration may leave out part of the variation.

 

Estimating the model at this level of detail is quite computationally demanding, and the researchers combine different techniques to address this issue. Their strategy to isolate the impact of local unemployment relies on an extensive set of fixed effects and on an instrumental variable strategy that relies on shift-share variation in local economic shocks.

 

Having data on small areas also makes it possible to model the role of distance in a detailed way. In this respect, the researchers find that distance plays a big role in explaining residential mobility patterns, and that most of the action is within very short distance, as descriptive analysis anticipated.

 

‘Residential Mobility and Unemployment in the UK’ by Monica Langella and Alan Manning, Centre for Economic Performance, London School of Economics

 

References:

 

Coen-Pirani, D (2010) ‘Understanding Gross Worker Flows across US States’, Journal of Monetary Economics 57: 769-784.

 

Greenwood, Michael J (1997) ‘Internal Migration in Developed Countries’, in Rosenzweig, MR, and O Stark (eds) Handbook of Population and Family Economics, Vol. 1B
 

Monras, J (2018) ‘Economic Shocks and Internal Migration’, CEPR Discussion Paper No. 12977.