Sunday, April 5, 2009

Migration patterns in the U.S. and Canada: one is healthy...

This recession has so far slashed 5.1 million jobs (according to the establishment survey at the BLS) and $3.7 trillion in household (and nonprofit, but this is a really small share) real estate value. And according to the Census Bureau, regional population growth patterns show a sharp slowdown in U.S. migration in the last year through July 2008.

It's not a stretch to put two and two together: U.S. households are holding leveraged assets (homes) that are falling in value. Households cannot, or will not, sell their homes; and instead of moving where the work is, they stay put. This is not efficient, as normally household migration picks up during an economic downturn. Chris Nekarda at UC, San Diego confirms this cycle of migration (via Economist's View):
In fact, geographic mobility is moderately countercyclical—that is, more people move during recessions than during booms (relative to trend). This may seem counter-intuitive but makes economic sense.

Geographic mobility is a means of reallocating resources, in this case labor, to more efficient uses.
In the past, 70 percent of people who move indicated having moved for economic reasons and up to 50 percent of those moves occurred because of a job separation [Lansing and Morgan (1967); Bartel (1979)]. In particular, there is a significant positive relationship between unemployment and geographic mobility [Bartel (1979); Schlottmann and Herzog Jr. (1981, 1984)]. Thus, countercyclical mobility is consistent with reallocation of idle workers across space.

Ryan Avent over at the Bellows Approaching the City blog writes a nice piece about the U.S. employment report released last week. He contends that there is a "decent" probability that the economy will experience a jobless recovery due to the oncoming shrinkage of key industries (construction being one); and therefore, workers must transition into other industries, which may be a slow and arduous process.

The sharp drop in migration increases further the odds of a jobless recovery. Since households are not moving to find work - especially away from those areas hit hardest in the housing market (see chart in this article and the WSJ article). The sectoral shifts and associated labor adjustments will take longer.

In contrast, Canada's labor force is migrating, as signs emerge of workers moving east where are the jobs. According to the Globe and Mail:

George Halliwell has been a headhunter in Charlottetown for the past seven years and has never seen such a wave of Canadians clamouring to move east.

“I'm searching for an engineer in Halifax right now – and everyone from the automotive industry in Ontario is applying for the job. They might make $60,000 in Toronto or Guelph, but they're willing to take $50,000 here because of the housing costs, the way of life is a lot simpler, there are no traffic jams and it's more family oriented.”


Migration flows reflect the changing tide. The region posted the smallest net outflow last year since 1984, according to the council. (In 2008, a net 500 people left Atlantic Canada to go to other provinces – a far cry from 2006, when a net 13,000 people left the region).

The precipitous decline of the U.S.housing market is rippling through the economy in very direct ways, via the financial markets and consumption, but also in more indirect ways. There are going to be more lasting effects as housing drives a wedge between the current migration pattern and its more efficient counterpart.

Rebecca Wilder


  1. A very helpful observation.

    It might also be useful to know what the proportion of households which are owners versus renters today versus the Great Depression and the recessions in between.

  2. Rebecca:
    A very astute article on Cdn migration.

    I was carefully thinking of how to choose the right words for what is already stated:
    [ because of the housing costs, the way of life is a lot simpler, there are no traffic jams and it's more family oriented.]

    And frankly, the countryside is vastly more pretty and sustaining.

    The comparison of Alberta to Nova Scoatia or Newfoundland would be Montana to Cape Cod, save that Montana is much less despoiled than Alberta.

    There's an irony not mentioned in your article though:

    Both Newfoundland and Nova Scotia have huge reserves of offshore petroleum. It now makes them 'have' Provinces. A nd the quality of the oil is very high, unlike much of Alberta's which is in Tar Sands (albeit not all, to the south, there is a large basin of high-quality crude that extends down into the US).

    Atlantic Canada gets the last laugh! Not only is she pretty and steeped in culture and history, she now gets to live comfortably.

    Meantime, Alberta is entering a deficit, the first in generations.

    Australia announced yesterday that she will mandate that the Banks (like Canada, the vast preponderance of mortgages are held by the 'big four' banks )('big five' in Canada, many similarities, both nations' banks in very good shape due to regulation and financial services reviews and legislation) must allow a year's grace on mortgage holders who are unemployed, the interest owed being rolled back into the mortgage.

    Story being carried in all Oz newspapers.

    Oz banks, like Cdn ones, can afford it, albeit at this time, the delinquency rate in Oz is very low, as it is in Canada.

    That may of course, change, but the underpinnings in both nations is as good as can be reasonably expected.

  3. Freude: I believe, from memory, the rate of ownership in the US during the Great Depression was approx 20%. Today, it is approx (or was) 70%.

    By insinuation, your point is very astute. Owning a home of course, ties you to staying...unless things get severely worse.

    It was that low ownership number, btw, that sparked programs like the FHA and other mortgage programs.

    By the early fifties, numbers were doubled. The US administrations in those days were far more proactive. It is only this year that has seen the US looking back again to find answers she has forgotten along the way.

    The FHA still carries an article on her website (a section of HUD) as to how the whole subprime fiasco was unnecessary. The FHA was offering low-risk/low cost mortgages all that time.

    Fodder for a discussion by Rebecca.

  4. Migration is dominated by young people that have not yet become homeowners. But their are other reasons.

    I suspect that if you adjusted the migration patterns for age you would find that homeownership is much less a negative factor than you think.

    Yes, it is a factor, but it is probably not that significant.

    Homes are much less liquid this cycle than they were in the last couple of cycles, but I bet if you go back to the days of Reg. Q you would find that in recessions it was more difficult to sell homes than it is this cycle.

  5. At the risk of being a serial poster, I just realized a glitch in my logic as stated to Freude:

    Rate of home ownership is even slightly higher in Canada than in the US, and with a far more stable Housing Market...

    And yet migration is far higher, and in a reverse direction.

    Obviously there are factors at play different than in the US. An obvious one must be that (other than in areas around Boston) the US housing market and economy is just as hit on the East Coast as in the West.



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