I saw an interesting tweet by Joe Weisenthal, discussing the question of what determines interstate migration:
This is the classic chicken and the egg problem—which comes first?
I view this question as an example of the fallacy of composition—what is true for the individual is not always true for the group. I suspect that Weisenthal is correct that when specific people move they are motivated by the availability of jobs. However, that’s not the entire story. Jobs are also moving to specific states, mostly in the sunbelt. And that migration is at least partly driven by the ready availability of labor fleeing areas with high housing costs, such as California.
And housing is not the only factor. Illinois is also losing residents, despite housing costs in that state being quite reasonable. Taxes and regulations are also more business-friendly in states like Texas.
When a firm considers where to locate a business, the availability of skilled labor is an important consideration. Suppose that a firm is able to pay lower wages in Texas due to its lower taxes and housing costs. In that case, a firm may decide to locate a new headquarters in the Lone Star State, even before a single new employee has been hired. From the perspective of the individual worker, they see their move as motivated by job availability. But the jobs are available precisely because employers know that there is a large inflow of workers into states like Texas, motivated by low housing costs and taxes.
At the aggregate level, it probably makes more sense to think in terms of employers following the workers—moving to where there is a large pool of workers willing to take jobs at a reasonable salary. But at the individual level it is often he case that the worker is following the employer, moving to where the jobs are.
As is often the case in economics, it is an equilibrium phenomenon. For instance, shoppers often like to visit an area that has a half dozen car dealers in close proximity, so that they can compare several different models. Car dealers like to locate their dealership next to other dealers, because they know these areas have plenty of shoppers for new cars.
Are the dealers drawing the shoppers? Or are the shoppers drawing the dealers? In equilibrium, the answer is “both”.
