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Does migration pay? Earnings effects of geographic mobility following job displacement

Abstract

It has been well established that involuntary job displacement has strong negative effects on earnings. Utilising a large dataset, containing all workers in Sweden who were involuntarily displaced from work through closures or substantial cutbacks occurring in 1987 or 1988, this paper studies whether migration helps mitigate these negative effects. Substantial gender differences in earnings effects of internal migration are found: men generally have positive effects, while the consequences for women are negative.

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Notes

  1. See Fallick (1996) for a review. For instance, using American data, Ruhm (1991) finds that weekly earnings are about 16% lower one year after displacement than earnings of workers in a control group. Four years after displacement, their earnings were still about 14% lower. Similar findings are reported by Jacobson et al. (1993), also using American data, where earnings reductions are found to be both large and persistent. Couch (2001) uses German data and finds no significant differences between displaced and non-displaced workers in the years prior to displacement, but large earnings reductions are found in the years after displacement. Farber et al. (1997) find that earnings losses are substantial, even for the sub-sample of full time American workers. Eliason and Storrie (2006) use Swedish registry data to analyse the effects of job displacement and find that displaced Swedish workers who suffer from earnings losses recover initially, but are more vulnerable to labour market conditions.

  2. Far from all displaced workers in our data experience unemployment, which can largely be attributed to the extremely healthy labour market conditions at the time of displacement.

  3. See for instance Chiswick (1978) and Borjas (1985, 1987, 1989) for American studies, Aguilar and Gustafsson (1991), Österberg and Gustafsson (2006), Edin et al. (2000) and Tezic (2004) for Swedish.

  4. Although closures and cutbacks occurred in 1987 or 1988, it should be noted that early leavers are also identified. These individuals might have left as early as in 1986 due to advance notice of a forthcoming closure.

  5. This can be either a complete closure or a reduction of the workforce by 20% or more.

  6. This closely follows the selection criteria made by Jacobson et al. (1993).

  7. A recent survey showed that of migrants aged 18 to 25, 43.6% gave education as their main reason for migration. This share then rapidly drops with age. In age groups 26 to 30 and 31 to 40, the shares are 12.3% and 0.6%, respectively (Niedomysl 2006).

  8. Average time of observation is 9.9 years, giving us 849,287 person-year observations.

  9. See, for instance, Ruhm (1991) for the USA and Huttunen (2005) for Norway.

  10. Details of the closure process and the process of compiling this data can be found in Eliason and Storrie (2004).

  11. Details of the procedures are found in Statistics Sweden (1991).

  12. Industry is defined on a two-digit SNI level. The SNI classification is based on the NACE system of the European Union.

  13. We look only at the effects of the first post-displacement migration, as this is most closely related to the initial job displacement. Additional migration can be argued to be, at least partly, a consequence of the first migration.

  14. For immigrants, education obtained in the country of origin is not automatically included in the registers as it is for individuals who obtained their education as part of the Swedish system. However, information on such education is obtained through the Population and Housing Census from 1990. Thus, if information on education is missing before 1990 but is observed in 1990, we use this information for the previous years as well, since it is reasonable to assume that the education was obtained but not recorded earlier.

  15. The Swedish rules for compensation for parental leave are very generous, and parental leave for one full year is not uncommon.

  16. Foreign-born have higher rates of early retirement, and there are several reasons to expect immigrants to be more prone to early retirement (Österberg and Gustafsson 2006). Early retirement is not only related to age but also to health status, as you have to be considered unfit to work. Many immigrants are refugees from war, with traumatic experiences that affect their health in a negative way. Other immigrants are labour migrants, who have generally worked many hours, which may also have affected their health negatively. As a third reason, many immigrants have had long spells of unemployment, which could have adverse effects on mental health.

  17. One exception is the positive effect of having no registered education. However, individuals with no registered education are generally older and it is likely that the lack of registered education is a result of missing information in registers rather than actually lacking education.

  18. Results are similar, but not identical, if we allow for a longer period of time from displacement to migration.

  19. See for instance Pekkala and Tervo (2002) for effects on employment in Finland, or Borjas et al. (1992) for earnings effects in the USA.

  20. Labour market attachment could affect the search intensity of the displaced worker and thereby potentially affect the estimated earnings effects of migration. Additional estimations were, therefore, made only for those individuals with no occurrence of unemployment in the two years prior to displacement. The estimated effects are almost identical to those presented here, differing mainly in the third decimal.

  21. Median discounted (1983 value) earnings for all years is slightly less than 87,000 SEK (just over 72,000 for women, and almost 102,000 for men).

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Acknowledgements

I appreciate comments from two anonymous referees as well as from James R. Walker, Marcus Eliason, Lennart Flood, and Donald Storrie.

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Correspondence to Anders Boman.

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Responsible editor: Klaus F. Zimmermann

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Boman, A. Does migration pay? Earnings effects of geographic mobility following job displacement. J Popul Econ 24, 1369–1384 (2011). https://doi.org/10.1007/s00148-010-0335-7

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Keywords

  • Internal migration
  • Earnings effects
  • Job displacement

JEL Classification

  • J31
  • J61
  • J65