CHAPTER 10. WORKER MOBILITY: MIGRATION, IMMIGRATION, AND TURNOVER

• Examine three dimensions of worker mobility• Migration (movement of natives within country)• Immigration (movement from other countries to U.S.)• Turnover (movement from one employer to another)

CHAPTER 10. WORKER MOBILITY: MIGRATION, IMMIGRATION, AND TURNOVER

Economic model of worker mobility

PV of Net Benefits =

where

Bjt = $ from new job (j) in year t (mea

Bot = $ from old job (0) in year t.

T = number of years one expects to work at job j.

C = the utility lost in the move itself (“moving costs”)

r = discount rate

Cr

BBT

tt

otjt

1 )1(

Predictions from model• A worker is more likely to move if:

– young • more years to collect benefits• “psychic” costs are lower• peak years for mobility are ages 20-24 (12% move across

state border each year)• by age 47, mobility rate drops to 4 percent.

– costs of move are low• single versus family• effect of second earner in family

– Low discount rate (longer time horizon)

Predictions from model• Net “out-migration” from an area will occur if wages fall in

that area relative to other areas.

• Short distance moves are more likely than long distance moves (C larger because of transportation costs and increasing cost of gathering information). – How will the growth of job information on the internet affect

migration?

• If one country has a higher return to education than another, more educated workers will tend to move to the country with the higher return.

• Family migration decisions based on family income effects– “tied movers” could experience decreased earnings

Returns to domestic migration

• A study of men and women in their 20s during 1979-85 – Migrants who moved for economic reasons had earnings increase 14-18

percent more than earnings of nonmigrants.

– Migrants who moved for “family” reasons experienced earnings decrease of 10-15 percent.

• More often women than men• Earnings loss reduced by job search prior to move

• “Power couples” more likely to locate in large cities– Helps reduce “tied mover” costs

• Interstate migration increases with education level– Information– Breadth of job market

• e.g. college professor vs carpenter

U.S. IMMIGRATION HISTORY• Prior to 1920, U.S. had essentially unrestricted immigration.• 1921, Quota Law passed.

– set annual quotas based on nationality.– reduced immigration from eastern and southern Europe.

• 1965: Immigration and Nationality Act– abolished the quota system based on national origin.– 1990 amendments allow:

• 675,000 people per year.• 480,000 reserved for family reunification• 140,000 reserved for immigrants with exceptional skills• 55,000 reserved for “diversity” immigrants (immigrants from countries that

have not recently provided many immigrants)• political refugees are permitted without limit.

• Officially recorded immigration in 2009: 1.1 million• Illegal immigration

– estimated at 10-12 million in U.S.

Source: http://www.fairus.org/site/News2?page=NewsArticle&id=16859&security=1601&news_iv_ctrl=1007

Source: http://www.dhs.gov/files/statistics/publications/yearbook.shtm

CONSEQUENCES OF IMMIGRATION

Domestic Labor Supply

Total Labor Supply

n3 n1 n2

w1

w2

• Immigrants reduce wages, increase total employment, but reduce employment of natives.

CONSEQUENCES OF IMMIGRATION

Other considerations for labor market effects• elasticity of labor supply• elasticity of labor demand• What if immigrants are gross complements to skilled labor?• Immigrants may increase labor demand through increased product demand.

Evaluating immigration policy:• labor market effects• cost of goods and services.• tax revenues versus government services

• evidence that those with above a high school education contribute more in taxes than they receive in government services; reverse for those with less than a high school education)

• should immigration policy be driven more by “skills”, family reunification, diversity?

CONSEQUENCES OF IMMIGRATIONBorjas (2003 NBER):

“immigration lowers the wage of competing workers: a 10 percent increase in supply reduces wages by 3 to 4 percent.”

David Card (2005 NBER): “Overall, evidence that immigrants have harmed the opportunities of less educated natives is scant.”

“On the question of assimilation, the success of the U.S.-born children of immigrants is a key yardstick. By this metric, post-1965 immigrants are doing reasonably well: second generation sons and daughters have higher education and wages than the children of natives. Even children of the least- educated immigrant origin groups have closed most of the education gap with the children of natives.”

The importance of assimilation to immigrants.

Illegal Immigration• Evidence that illegal immigrant from

Mexico nearly doubles the average wage earned in Mexico

• Enforcement– Fences– Deportation of illegal– Fines for employer

Job Mobility

Determinants:• compensation package

– deferred pay– “efficiency” wages– Non-compete clauses

• what causes firms to offer a package that reduces quits? – specific training– large hiring/screening costs– high monitoring costs (more on this later)– Trade secrets

• men vs. women– men tend to receive more specific training and compensation

packages that reduce turnover.

Worker quit rates are pro-cyclical

JOB MOBILITY

• large vs. small firms

– Large firms have greater difficulty monitoring workers– To help reduce monitoring costs, large firms tend to invest more

in training, employ higher quality workers, use better capital.– much of the reason large firms have lower turnover is that their

pensions are designed to penalize quitters.

MOBILITY COSTS AND MONOPSONY

MEa

LS a

LS bME b

Na Nb

wa

wb

•For any given level of employment (Na + Nb), the firm will equate ME for each type of labor. •The more inelastic is labor supply, the greater is the difference between ME and W. •The more inelastic is labor supply, the lower the wage rate paid.•LESS MOBILE WORKERS ARE PAID LESS.

MOBILITY COSTS AND MONOPSONY

• Applications of monopsony model– Married versus single– Urban versus rural– With vs. without children– Majority versus minority workers.