Labor demand shocks differ widely across regions within countries. Yet, migration patterns often do not respond to these regional shocks. Are workers’ limited migration responses due to lack of information about the potential net gains from regional migration? To answer this question, we analyze the mobility decisions of all formally employed workers in Brazil over 15 years. First, using a reduced-form approach, we document heterogeneous delay in reaction to positive local labor demand shocks: workers living in more distant regions and in regions with a lower degree of internet penetration tend to react more slowly to positive local labor demand shocks happening in other regions within the same country. Second, using a structural approach, we use model-based moment conditions and tests of overidentifying restrictions to test for the content of migrants’ information sets. Our preliminary results indicate that the precision of the information that workers have about labor market conditions in regions other than their region of residence decays very quickly with distance. Agents located in regions with a better access to internet also appear to have more precise information.
When workers move to a larger city, they tend to experience an increase in earnings. But they also tend to move to larger and better-paying establishments. This paper studies the role of establishment-size composition in explaining the city-size earnings premium. Using administrative data from Spain, we first document a strong positive correlation between city size and establishment size, measured as the number of co-workers. The establishment size for a typical worker is 33 percent larger in a city with twice the population density, even after controlling for worker fixed effects and other observable characteristics. We then decompose the city-size earnings premium into two components: the increase in earnings explained by the increase in establishment size and the within establishment-size premium. We find that 30.8 percent of the short-term gains of moving to a city twice larger can be explained by a transition to a better-paying larger establishment. In contrast, only 5.0 percent of the medium-term gains of accumulating experience in a large city can be attributed to a faster transition to larger establishments. The small contribution to the medium-term gains is due to two facts: first, in large cities establishment size only grows slightly faster than in smaller cities; second, the relationship between earnings and establishment size is weaker in larger cities. Our results indicate that the role of establishment size composition is fundamental for understanding the short-term gains of moving to a larger city but much less so for explaining the medium-term gains.
The 2004-07 Enlargement of the European Union introduced 12 countries into the free European labor and goods markets, leading to an intensification of trade and migration flows within the European Union. How did this two-fold integration affect the welfare of new and former member countries? To investigate this question, I develop a quantitative economic geography model with costly trade and migration. In the model, agents of different skill, in each of the 27 EU countries, make migration decisions. I use data on yearly bilateral migration and trade to estimate the decline of migration and trade costs between 2000 and 2015. I then compare the welfare of each country in 2015 to a counterfactual economy in which bilateral migration and/or trade costs would have remained at their 2000 level. The decrease in trade costs led to an average of 2.1% welfare gains among new EU members, and 0.22% gains among former members, while the decrease in migration costs induced 7.1% welfare gains on average for new members, and 0.61% gains for former members. By allowing convergence in income between new and former member countries, trade integration limited migration incentives, leading to a reduction of migration flows by 6.4%. The positive selection on skill of migrants from new member countries led to an increase in the skill premium by 5% in these countries.