Regional unemployment rate differentials and mobility of the unemployed

Abstract

This study uses a longitudinal data set of administrative records to investigate geographical mobility among unemployment benefit recipients in Australia, focusing on the role of regional differences in employment opportunity and housing costs. Two statistical approaches are used. The first is to model the probability that a benefit recipient changes region within a 12‐month period, with measures of employment opportunity and housing costs in the “home” region included among the explanatory variables. The second models flows between regions, with the regional differentials included among the regressors. Rather than providing evidence that unemployed persons move to areas of higher employment opportunity, the results are suggestive of poverty traps in which the unemployed move to areas of lower living costs and hence lower employment opportunity. There is some evidence of negative incentive effects of unemployment benefit levels on mobility, but this is difficult to ascertain due to the limited variation in that variable.