Friday, October 2, 2009

Internal migration


People move around in most modern societies. Recent graduates of most universities often compete in national job markets, and large engineering, accounting, and consulting firms recruit at elite universities throughout the country. So there is a certain amount of location churning created by the need for talent that draws talented young people from one region to another. (In fact, it would be interesting to try to quantify this fact of geographical mobility: for example, what percentage of college graduates from New York or Florida take their first job in another state or economic region?)

But this kind of career-based mobility isn't quite what we mean when we refer to internal migration. Intuitively, we mean significant numbers of people relocating from their home region to another region for economic reasons. Internal migration leads to enduring population shifts across regions of the country.

We've seen periods of this kind of population relocation several times in our own history: the westward movement from the east coast of poor and working people in the mid-nineteenth century, the mass migration of African-Americans from the rural south to northern cities in the 1920s, and the exodus of the Tom Joad family and their generation from Oklahoma to California in the 1930s. We might even put the flow of people from Michigan to the sunbelt in the 1980s into this category, and perhaps the displacement of poor people from New Orleans by Katrina and its aftermath reaches the threshold as well.


So here is my question for the moment: is the United States on the verge of another period of significant internal migration, as workers downsized in Detroit or Akron make the painful decision to relocate in Houston or Phoenix? Are we about to see a significant shift of population from the rustbelt to the sunbelt? And what consequences would this have for Illinois, Ohio, or Michigan?

Think about the situation that faces young people in these states today. What is the best strategy for 25-year-olds in Akron or Detroit? One is to maximize their twenty-first century source of wealth and well-being -- their education and talent levels. But the second is to relocate to a place where there are the largest number of economic opportunities available to them at their existing levels of skills. And today that means a certain number of cities and much of the sunbelt. Chicago looks good, Houston looks good, and maybe Salt Lake City looks good.

If these are the primary choices available to young people in the industrial midwest, what should we expect about their behavior? And what consequences do these incentives give rise to? First, this situation seems to imply a surge in university enrollments (a good thing); rationally, we would imagine that young people would invest their time, energy, and resources towards getting a good education. But second, these considerations also seem to imply a surge in out-migration to more dynamic regions once it becomes clear that current conditions are likely to persist (a bad thing). So current economic conditions in the midwest seem to increase the chances that significant internal migration will occur in the next few years.

One way of thinking about the likelihood of significant population movement from one economic region to another is to consider the economic capacity of a state or region to support a certain level of income for a given population size. Industrial states in the Midwest were strong economic engines in the 1950s through the 1980s. Steel, cars, and chemicals generated a great deal of revenue every year, and this supported a large and relatively prosperous population. But two things happened: these industries were forced into lower costs and higher productivity -- so the demand for labor fell even when demand for cars remained high. And global competitors appeared on the scene to capture part of the market for these products -- reducing even further the demand for labor. Moreover, both processes led to a premium on skilled labor, thus further reducing the demand for one segment of the workforce.

There is an important implication here: it seems to imply that the basis for a high quality of life for 10 million people in Michigan or Ohio has basically disappeared. If technology and market conditions don't change, then Michigan and Ohio will either lose population or adjust to a permanently reduced standard of living.

We would prefer to believe that we'll find a way out of the box. But looking at things dispassionately, what seems equally likely is a restructuring of population around the new realities of America's economic macroregions. (Texas alone gained 700,000 jobs during the period of 2000-2009.) And this would mean large-scale internal migration, with a "right-sizing" of the population sizes of states and regions around their current economic capacities. (Basically, this is the central theorem of the theory of labor markets: we should expect migration from one region to another up to the point where employment prospects and wages are equal in the two regions.) For Michigan this might imply a loss of population of one or two million people, as workers and their families seek to improve their prospects. Moreover, there is a great risk that among the first to go will be the best educated and most innovative young people; these are the people who have the greatest options throughout the national labor market. And they are precisely the people who will be needed if Michigan or Ohio are to succeed in nurturing a "New Economy."

This scale of internal migration would have enormous consequences on both ends. Communities would be significantly disrupted, as families exit their locations in the social networks of their local communities. This magnitude of loss of population would mean a shift of political representation; for example, Michigan would lose roughly 10-20% of its Congressional seats (depending on the population results for the rest of the country). Michigan's public schools, community colleges, and universities would lose a significant number of students and would need to downsize. The state's fiscal equation would change on both expenditures and revenues. Tax revenues would fall as a result of fewer taxpayers, less business activity, and less aggregate demand and sales tax revenue. But the volume and cost of public services would also fall. So managing change and rationalizing the delivery of public services could actually improve the state's fiscal situation. The ultimate result would be a fundamental transformation of the cultural and social life of the state -- and not in a direction that most people would willingly choose.

Is this just a worst-case scenario? Maybe not. Here is a well researched Detroit News story by Ron French and Mike Wilkinson in April 2009. The story estimates that Michigan has lost 465,000 people since 2001 -- and the number continues to rise. Moreover, French and Wilkinson offer data that confirm that there is a disproportionate number of talented, skilled professionals in the mix -- with substantial costs to the Michigan economy with their departure. Ohio State University economist Mark Partridge is quoted in the article in these words (webpage):
Migration is good for the migrants but bad for the state they're leaving. It's a vicious downward cycle; the best and brightest leave; entrepreneurs don't come to the state because the best and brightest are elsewhere; as more people leave, that leaves fewer people to pay for services. Neither one will make Michigan a very appealing place.
There is a happier alternative, of course -- the creation of a New Economy for the rustbelt. This is what governors like Jennifer Granholm in Michigan and Ted Strickland in Ohio are advocating. Elected officials, economic development experts, and business leaders call for the creation of new and diversified industries for the rustbelt economy. Some experts and politicians point to a new green economy based on alternative energy technologies; others point to the prosperity possible by producing and selling innovations in biological and medical products. And yet others pin their hopes on the encouragement of large numbers of innovative, nimble companies that generate wealth, jobs, and prosperity. Let's hope that some of these strategies will succeed on a large scale. But, as noted in an earlier posting, the challenge is a great one. New economic activities need to create a hundred thousand jobs a year if we are to recover the ground we've lost in Michigan. And that is a large number.

1 comment:

David said...

This is IRON100 (David B):

This is not to diss your argument but to force you to think in broader dimensions. Ultimately, migration in this economy is not the final answer. Why? Because:

1) Unless there is structural change in our economy, many of the jobs of last 20 years will NEVER return. That is going to be particularly true in construction and manufacturing. Why would someone in Detriot think that they could take a person's job in South Carolina at BMW, when there is already full (or perhaps overfull employment). BMW just recently offered voluntary retirement to 3000 of the 5000 workers at the facility in Spartanburg County.
Will the next layoff be voluntary. No. Robotics do not ask for pay increases. Manufacturing labor is going to be mechanised soon enough.
Migrating from one area of unemployment to another area of potentially high unemployment will not work. States cannot afford the social burden of it.

2) Industries around the world WILL MIGRATE faster than jobs will. Why? With lesser fixed plant costs, most industries can uproot and move to where the cheapest labor is. Think China and India have a lock on that? They do not. Where is the cheapest labor in the world (particularly if gov'ts liberalize control)? The continent of Africa. Industries will find ways to exploit labor there eventually (or the populations will become even more violent).

Item 2 worries me more than 1, because our complacent leadership in this state thinks BMW and Michelin will stay here forever. Nothing could be more foolish. Other states will face similar problems, as jobs simply are not plentiful enough to capture that migration.

As Americans, we must find a way to:

1) Educate our population so that they have the skills to innovate new technologies.

2) The hardest task: Change our byzantine tax policies that make use the highest tax corporate environment in the world. A national sales tax (and not the idiotic VAT that the current Congress wants to unleash on business to further make us uncompetitive).

I still believe that we could engage in certain high tech manufacturing if costs were lowered to do business. Our government, though fiscal mismanagement, has destroyed the value of the US Dollar, so why not use that advantage to find foreign venture capital to build plants here? That would work if the punishment of high taxation were removed. Sadly, the Marxists of the Democratic party and the "Deficits don't matter" Neo-conservatives of the Republican party cannot see the forest for the trees. That is largely because they are blinded by their thirst for control and wealth and care nothing about the future of the country.

I think our solutions are fairly simple, but we lack the will to make them a reality. Migration of work force, particularly in the age of internet and computer technology, is a fools errand. Innovation and prudent fiscal policy will bring jobs, educated, and EDUCATABLE immigrants to join the ones here who built this nation.

We can innovate anywhere and everywhere, we need ethical leadership (something both major political parties are devoid of) and the blood sweat and tears of the American people to make it happen. Americans need to fight back the poison of its leadership and begin a new era of citizen rule. Emptying Congress of the current rabble is the first place to start.