Moving to Economic Opportunity

Abstract

In recent years, internal migration rates have fallen to all-time lows, raising questions about why more individuals do not appear to move to encounter more favorable labor market conditions. The fracking oil and gas boom has recently created large, localized economic shocks and corresponding wage increases for men with all levels of education. Fracking can only occur in certain areas exogenously determined by geology, creating a unique situation to identify wage-induced labor migration. In this paper, I first characterize the reduced form migration response to localized fracking booms. The data indicate that migration has been concentrated in North Dakota, with the largest population growth seen among men who are young, unmarried, or moderately educated. Using an instrumental variables (IV) approach to estimate the elasticity of in-migration with respect to wages, I find that a one percent increase in local average wages increased the in-migration rate by 4.6 percent in North Dakota, but only by 3.1 percent in other states. The elasticity in North Dakota is consistently larger across specifications. I find that initial labor market conditions, potential differences in commuting feasibility, and potential non-linear relationships between wages and migration do not seem to explain the geographic difference, while information might play a role. In combination these results suggest that in limited circumstances, there is still substantial migration to potential wage gains, although the magnitude of this response might be severely dampened by external non-market factors, such as the lack of information.