The laws of attraction: Economic drivers of inter-regional migration, the role of housing, and public policies

Orsetta Causa, Maria Chiara Cavalleri, Michael Abendschein, Nhung Luu 11 December 2021

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Inter-regional migration can contribute to the smooth and inclusive recovery from the COVID-19 crisis (for instance, by helping to match workers and jobs) as well to the green transition (for instance, by helping labour reallocation towards low-carbon activities). Mobility across regions can also contribute to upward social mobility, for instance by allowing workers to move out of disadvantaged areas or declining sectors. While promoting mobility is not an end in itself, managing mobility is an important policy challenge, especially in countries with large and persistent spatial disparities between regions.

Recent work by the OECD (Causa et al. 2021, Cavalleri et al. 2021, OECD 2021a) examines the levels and trends of inter-regional migration within and across OECD countries. It presents novel cross-country and country-specific empirical evidence on economic and housing-related factors affecting people’s decisions to move to a different region within the same country. This work shows how policies influence the responsiveness of regional migration to regional economic conditions and shocks. It also contributes to the renewed interest in regional inequalities and placed-based policies (Siegloch et al. 2021, Ku et al. 2020, Iammarino et al. 2019).

We find that inter-regional migration varies significantly across OECD countries (Figure 1). In high-mobility countries, such as Hungary and Korea, around 5% of the population moves to another region each year. By contrast, mobility rates are below 1% in some Eastern and Southern European countries, such as Slovakia, Poland and Italy.

Figure 1 Inter-regional migration in OECD countries

Notes: Internal regional migration rates are defined as the number of migrants coming into the region from another region in the same country divided by regional population one year before. Average of years 2012–2017 or closest period: i.e. AUS (2012–16), BEL (2012–15), DEU (2012–16), DNK (2012–16), FRA (2013–15), GBR (2012–15), ISL (2012–16), ISR (2012–16), ITA (2012–15), LTU (2012–15), MEX (2015), TUR (2012–15), USA (IRS) (2013–14,2016), USA (CPS) (2012–2017). The OECD regional classification scheme is applied. TL2 regions indicate large regions, TL3 small ones. Source: US data from CPS/IRS; GRC and PRT from EULFS; the remaining countries from OECD regional database.

Our estimates reveal that high regional income is the primary source of attraction to move to a region, while adverse labour-market conditions and high or increasing regional house prices are the main factors encouraging out-migration.

However, the relevance of these drivers differs across countries. Housing affordability is an important barrier to migration in countries that have experienced strong increases in the level and cross-regional dispersion of house prices, while it is less so in countries where commuting is an alternative to migration. The cross-country comparison in terms of the sensitivity of migration to regional income, regional labour market, and housing conditions is reported in Table 1.

Table 1 The responsiveness of inter-regional migration to regional economic factors

Notes: Migration responsiveness refers to the responsiveness of inter-regional migration with respect to GDP per capita, unemployment, and house prices in destination regions. Countries are ranked in descending order according to their size of effects of regional GDP per capita, unemployment rate, and house prices on inter-regional migration.

We demonstrate that a wide range of policies in the area of housing, labour market, and social protection as well as business regulations shape the responsiveness of inter-regional migration to regional economic conditions. For example, in the area of housing:

  • Where housing supply is more flexible, inter-regional migration is more responsive to local economic conditions. Reducing policy-driven barriers in this area – for example by reforming the governance of land-use and planning policies – may facilitate moving towards better economic opportunities by reducing house-price differences across regions.
  • Stricter rental regulations, both rent control and greater security of tenure, are associated with lower responsiveness of inter-regional migration to local labour-market conditions. The policy challenge is to strike the right balance between tenants’ and landlords’ interests, i.e. between ensuring adequate security of tenure and encouraging the supply of rental housing for all socioeconomic groups.
  • Housing-related social transfers, both in-kind in the form of social housing and in-cash in the form of housing allowances, are associated with lower responsiveness of inter-regional migration to regional economic conditions. This suggests the possibility of ‘lock-in effects’, where social tenants are reluctant to move for better economic opportunities as they may lose access to social housing. Social housing can be designed to help mobility and incentivise employment, so as to ensure that more vulnerable households have access to affordable housing options in other and potentially distant labour markets that offer better employment opportunities. This can be achieved, for instance, by removing queuing or residency requirements in the case of employment take-up, or by gradually phasing out social rent benefits at higher income levels.

In the area of product markets, we find that reforms aimed at spurring business dynamism would facilitate internal migration in response to regional unemployment and GDP. According to the estimates, an illustrative policy simulation to reduce barriers to entrepreneurship from the maximum to the average level would move the pass-through from unemployment to migration from statistically insignificant to close to 1.7%. The same result applies to regulations of professional services. Reforms to relax barriers to entry in accounting services is reported as an illustrative example, with an estimated order of magnitude similar to the one for overall barriers to entrepreneurship (Figure 2).

Figure 2 Easing administrative burdens for business and barriers to entrepreneurship: illustrative simulations

Responsiveness to regional unemployment

Notes: OECD calculations based on selected interaction effects from a regression of inter-regional migration on the interaction between a policy variable and regional unemployment, among other variables. The dot is the estimated in-migration elasticity evaluated at the average policy. The distance between the Min/Max and the average is the change in the estimated elasticity associated with a policy change. A dashed line means that the estimated elasticity is not statistically significant over the corresponding range. *** denotes the statistical significance of the estimated elasticity (i.e. 1%).
How to read: a decline in regional unemployment by 10% is estimated to trigger a rise in in-migration by 1.7% at the mean of the cross-country distribution of product market regulation/barriers to entrepreneurship indicator, 0.074% at the maximum, and 2.4% at the minimum. The policy variable refers to the latest available year.

Our findings demonstrate that structural policies have a strong impact on the responsiveness of inter-regional migration to regional economic conditions and shocks. Inter-regional migration gains policy traction as the recovery from the COVID-19 crisis and the transition to low-carbon production are likely to require some degree of labour reallocation. This includes geographical reallocation, for example between regions specialised in shrinking sectors and those specialised in expanding sectors (see also OECD 2021b).

Yet, the extent to which policies should influence inter-regional mobility and the nature of appropriate interventions will vary depending on countries’ economic and social contexts. There is a case for helping both prospective movers and stayers. This can be achieved by articulating structural policies with place-based policies that seek to foster skills and economic and labour-market dynamism at the local level. Further, the provision of public amenities need to be enhanced where they are lacking and clean transport and digital infrastructure developed so that less-developed areas can better connect to more developed ones.

References

Causa, O, M Abendschein and M C Cavalleri (2021), “The laws of attraction: Economic drivers of regional migration, housing costs and the role of policies”, OECD Economics Department Working Papers No. 1679.

Cavalleri, M C, N Luu and O Causa (2021), “ Migration, housing and regional disparities: A gravity model of inter-regional migration with an application to selected OECD countries”, OECD Economics Department Working Papers No. 1691.

Iammarino, S, A Rodriguez-Pose and M Storper (2019), “Regional inequality in Europe: Evidence, theory and policy implications”, Journal of Economic Geography 19: 273–98.

Ku, H, U Schönberg and R Schreiner (2020), “Place-based payroll taxes and regional employment”, VoxEU.org, 15 February.

OECD (2021a), Brick by brick: Building better housing policies, Paris: OECD Publishing.

OECD (2021b), OECD employment outlook, Paris: OECD Publishing.

Siegloch, S, N Wehrhöfer and T Etzel (2021), “Regional firm subsidies: Direct, spillover, and welfare effects”, VoxEU.org, 4 June.

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Topics:  Labour markets Migration

Tags:  economic development, immigration, labour, migration, Migration policy, OECD, regional inequality

Senior Economist, Deputy Head of Division, Structural Surveillance Division, OECD Economics Department

Economist, Economics Department, OECD

Junior Economist, OECD Economics Department

Consultant, OECD Economics Department

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