Lecture 5a - The Economics Network

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Local & Regional Economics
Inter-regional (Labour) Migration
Regional and Local Economics (RELOCE)
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Local & Regional Economics
RELOCE - Lecture 5a
Last week: - Inter regional Trade
This Lecture: - Inter regional labour migration
Aims:



Examine classical theory of migration
Examine alternative theories
Examine what happens in periods of recession to see if
migration is an equilibrating influence.
Outcomes:



To understand the classical and alternative theories of
labour migration
To be aware of some of the recent evidence of migration
between UK regions
To understand how migration impacts on recessions
Regional and Local Economics (RELOCE)
Lecture slides – Lecture 5a
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Local & Regional Economics
What are the assumptions of the
Classical Model?
 Perfect competition exists in all markets.
 Constant returns to scale
 No barriers to migration (e.g. factor migration is
costless)
 Perfectly flexible factor prices
 Homogeneous factors of production
 Complete information about factor returns in all
regions
Regional and Local Economics (RELOCE)
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Local & Regional Economics
South’s Labour Market
Ss1
Real
wage
North’s Labour Market
Real
wage
Ss
W2
W1
SN
W1
L2
L1
Ds
L1
Employment
Ss1
Ss2
Real
wage
W2
DN
Employment
SN1
Real
wage
SN
W*
W*
Adapted from Armstrong
and Taylor (2000) pp 142
W1
L2 L*
Ds
Employment
DN
L* L1
Employment
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Local & Regional Economics
What happens in practice?
Net migration flows 1991 - 98
South West
South East
London
Eastern
West Midlands
East Midlands
Yorkshire and the Humber
North West and Merseyside
North East
Northern Ireland
Scotland
Wales
-500
-400
-300
-200
-100
0
100
200
300
Net migration in thousands
Regional and Local Economics (RELOCE)
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Local & Regional Economics
1960-61 1965-66 1970-71 1975-76 1980-81 1985-86 1990-91
Northern
Yorkshire &
Humberside
North West
-4.4
-0.5
-0.5
1.1
-2.6
-2.3
0.8
-2.2
0.7
-5.3
-2.9
-3.5
-4.9
-1.2
-1.7
-0.5
-4.1
-4.7
-8.1
-7.5
-2
East Midlands
3
4.4
2.6
3
2.7
4.6
1.5
West Midlands
2.2
-0.6
-2.7
-5.3
-4.4
-4.6
-1.5
East Anglia
0.6
3.4
6.2
6
3.8
7.2
3.8
South East
9.2
-5.2
0.3
-7.7
7.4
-0.6
-10.6
South West
5.1
5.3
8.4
8.2
7.2
13
6.6
Wales
-1.9
-0.3
0.1
1.7
-0.7
1
0.5
Scotland
-9.7
-6.7
-5.1
0.5
-1.9
-5.9
2
Peripheral Regions2
-17.9
-7.9
-17.5
-9.5
-21.1
-24.2
-1.3
7.5
-5.6
-11.8
-20.6
-8.6
-17.6
-15.3
Conurbation Regions3
Table 9.1 Net migration of working age males between regions of Great Britain: 1960-911
Source: Gordon and Molho (1998), based on the Census and NHSCR.
Notes:
1. Figures are in thousands.
2. Consists of Northern, North West, Yorkshire & Humberside, Wales and Scotland.
3. Consists of South East, East Midlands, North West and Yorkshire & Humberside.
Regional and Local Economic Analysis (RELOCE)
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Local & Regional Economics
Gross flows are far larger than net flows, and mask a vast
movement of people migrating for a range of economic and noneconomic reasons
North West
Yorkshire and The
Humber
East Midlands
West Midlands
East
London
South East
South West
Wales
Scotland
Northern Ireland
North East
North West
Yorkshire and The Humber
East Midlands
West Midlands
East
London
South East
South West
Wales
Scotland
Northern Ireland
Gross outflow
Net effect
.
5.7
9.2
3.0
2.4
2.5
4.8
4.0
2.2
1.0
4.3
0.6
39.7
-0.2
5.9
.
18.3
9.3
12.0
6.7
12.2
11.2
8.7
10.1
7.8
2.1
104.3
-5.0
9.2
18.2
.
18.3
7.3
7.3
10.8
9.4
6.1
2.9
5.4
0.8
95.7
-3.0
3.2
9.0
16.2
.
14.7
14.1
11.4
14.4
8.8
3.2
3.5
0.6
99.1
9.2
2.3
12.4
7.8
16.1
.
7.2
12.3
13.2
15.9
9.3
3.4
0.8
100.7
-8.0
3.0
6.9
8.5
18.5
7.6
.
30.8
29.3
13.2
3.6
4.7
0.9
127.0
17.9
3.9
11.9
9.8
12.4
12.1
64.9
.
97.1
22.4
5.3
6.9
1.8
248.5
-81.5
4.5
11.2
10.2
17.6
13.7
26
55.9
.
44.8
8.9
8.0
1.4
202.2
24.0
2.2
7.2
5.4
7.0
12.3
9.1
16.3
33.3
.
10.3
4.0
0.7
107.8
28.7
1.0
8.3
2.6
2.7
7.5
2.9
5.0
7.1
9.9
.
1.8
0.5
49.3
7.3
3.5
6.3
3.9
2.8
2.5
3.5
6.2
6.0
3.7
1.6
.
2.6
42.6
9.0
0.8
2.2
0.8
0.6
0.6
0.7
1.3
1.2
0.8
0.4
1.8
.
11.2
1.6
Source: NHSCR Inter-Regional
Migration Movements
Regional and Local Economics (RELOCE)
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Gross inflow
Region of destination
North East
Region of origin
39.5
99.3
92.7
108.3
92.7
144.9
167.0
226.2
136.5
56.6
51.6
12.8
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Local & Regional Economics
Why is there perverse migration?
 Labour is not homogeneous - includes workers with different
skills.
 Migration data also includes those not in the labour market.
 Low-wage regions - high-wage locations for particular
industry sectors.
 Returning migrants moving back to their region of origin.
 Some move for individual advancement, whilst others move
as part of a career plan or because of company transfer
policies (companies may move key workers around different
plants).
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Local & Regional Economics
Districts
Net out
migration
%
London
33
21 64% South East
North West
43
25 58%
Wales
22
North East
23
Yorkshire and the
Humber
21
Average
376
Districts
Net out
migration
%
67
30 45%
34
15 44%
40
11 28%
11 48% East
48
13 27%
10 48% South West
45
West
Midlands
East
11 50%
Midlands
2
4%
149 48%
Table 9.3 Inter district movements by working age residents 1998/99
Source: ONS Statbase 2000, Clark 2000
Migration of working age residents only
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Local & Regional Economics
What are the Inadequacies of the Classical Model?
 Differences in employment opportunities
 Sticky wages.
 Financial and psychic costs.
 Migration “selective”
 More likely to move between prosperous regions
 Short distance
 The institutional framework and the personal and family
characteristics of migrants have an effect
See article by Pissarides & Wadsworth
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Local & Regional Economics
The Human Capital Approach
 Based on lifetime rather than current “earnings”
T
Rij 
t 1
y jt  yit
1  d 
t
PVij  Rij  Cij
Strengths & Weaknesses
 Based on more realistic assumptions
 Explains “perverse migration”
 good in theory but less successful in practice (due to
modellers using limited variables)
 does not explain how people acquire information
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Local & Regional Economics
Job Search Model
 2 stage process
Migrant chooses
from a selection
of destinations
Stay or leave
region of
origin?
Strengths & Weaknesses
 Mathematically complex
Phij  A
B
 Incorporates reservation wage and hiring behaviour
 Speculative or contracted migration
 Takes account of lags
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Local & Regional Economics
Gravity models
 Developed by geographers show aggregate flows
Mij  f ( Ai, Bj, Dij 
Strengths & Weaknesses
 Uses less information about the individual migrant
 Can be extended to incorporate economic variables
M ij  f Pi , Pj , Dij ,U j  Ui ,Wj  Wi 
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Local & Regional Economics
Effect of recession and question of whether
or not migration is equilibrating?
 Lower than expected returns to migrants during
recession, greater uncertainty, liquidity constraints
 Unemployment rates might have been higher without
migration, helps reduce overheating
 Migration can be beneficial to the individual after the
initial period
 Depressed region hit by “selective” migration
 Positive multiplier effects in receiver regions, negative
multiplier effect in departure regions
 Capital and labour flow in the same direction, “push”
factors most important to firms
 Those who should benefit from migration are least likely
to migrate (unemployed).
Regional and Local Economics (RELOCE)
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Local & Regional Economics
Conclusions
 Migration does not conform strictly to the classical model.
 Other factors are at play as well as real wage differentials.
 Problem of the sluggish labour market.
 Alternative models are better in theory at predicting regional
migration because they take more factors into account.
 Migration is only partly equilibrating.
 In recessions job opportunities dry up and migration falls
substantially.
 It is only in long periods of boom that migration may start to
erode regional employment and wage disparities.
Regional and Local Economics (RELOCE)
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Local & Regional Economics
Inward migration
1981
1986
1991
1996
Eastern (E)
121
145
122
139
London (L)
155
183
149
168
South East (SE)
202
243
198
228
South West (SW)
108
149
121
139
Outward migration
1981
1986
1991
1996
North East (NE)
39
46
41
45
North West (NW)
88
101
94
103
Merseyside (M)
34
37
29
31
Yorkshire & Humberside (YH)
73
91
85
98
Wales (W)
42
50
47
53
Table 9.6 Gross inflows and outflows of migrants from selected regions of GB1: 1981-96
Source: Office for National Statistics, General Register Office for Scotland and National Health Service Central Register.
Note 1. Figures are in thousands based on patients re-registering with NHS doctors in other parts of GB
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