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The Migration Accelerator: Labor Mobility, Housing, and Aggregate Demand

Greg Howard

No 563, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: Because people choose to move to relatively prosperous regions, economists have traditionally believed that migration mitigates the effects of local shocks. In the first part of this paper, I document that the opposite holds in the data: within-U.S. migration causes a large reduction in the unemployment rate of the receiving city, over several years. To establish the causal effect of inmigration, I construct a plausibly exogenous shock by using the outmigration of other places and predicting its destination based on historical patterns. In the second part of the paper, I document that the increase in the demand for housing explains the boom, through two channels. The construction channel occurs because housing is a durable good: hence there is a surge in the number of new houses and construction jobs. The house price channel occurs because the migrants' housing demand drives up prices, leading to increased borrowing and higher labor demand in non-tradable sectors. Together, these channels account for the size of the labor demand boom. This boom implies that the endogenous response of migration amplifies local labor demand shocks, an effect I label the "migration accelerator." In the final part of the paper, I estimate that migration amplifies these shocks by 20 percent.

New Economics Papers: this item is included in nep-mig and nep-ure
Date: 2017
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