“Population Aging Migration Spillovers, and the Decline in Interstate Migration” by Serena Rhee
University of Pennsylvania
Federal Reserve Bank of New York
Interstate migration in the United States has declined by 50 percent since the mid-1980s. We study the role of the aging population in this long-run decline. We start by documenting that an increase in the share of old workers in the working age population in one state causes a large fall in the migration rate of all workers in that state, regardless of their age. To understand this finding, we develop a simple equilibrium search model consisting of two locations populated by two types of workers who differ in moving costs. Firms prefer hiring local workers who have higher moving costs and thus a lower outside option. Our main theoretical result shows that an increase in the share of high moving-cost workers causes firms to recruit more from the local labor market. This increase in the local job-finding rate reduces the migration incentives of all workers; a phenomenon that we label as "migration spillovers." When calibrated, our model reproduces remarkably well the cross-sectional relationship between population flows and the age structure of the labor force. Finally, we use the model to quantify the contribution of the aging population to the decline in migration since the mid-1980s. Our results suggest that population aging accounts for as much as 60 percent of the observed decline. Of this effect, almost 80 percent is attributable to the indirect general equilibrium effect.