RDP 9801: Labour Market Adjustment: Evidence on Interstate Labour Mobility 6. Conclusions

This paper has analysed the role that interstate labour migration has played in the adjustment of the labour market to state-specific shocks. The results in Section 4 suggest that the migration decisions are affected by relative labour market conditions between states, and, in particular, that individuals are more likely to migrate from a state with a high unemployment rate. Thus, labour mobility does appear to play an important role in reducing differences in labour market conditions between states.

We also find that movements in the national unemployment rate explain most of the variation in state unemployment rates, suggesting that aggregate, rather than state-specific factors, are most important in understanding Australia's high aggregate unemployment rate.

The results from our model in Section 5 suggest that out-migration from a state resulting from a relative downturn in its labour market occurs slowly and steadily. Most of the migration takes place, on average, within four years, and the process of adjustment is complete after seven years. We also find that movements in relative wages across the states have not been an important part of the adjustment process historically. We do, however, find some evidence of permanent (or at least very persistent) differences between state unemployment rates, employment growth rates and participation rates. This finding is consistent with the fact that unemployment in South Australia and Tasmania has remained above the national average over most of the past 20 years. These persistent differences between states may reflect compensating lifestyle differentials, a sequence of relative adverse shocks, or possibly the inability of internal migration to entirely equalise labour market opportunities.

We have not examined here the barriers to mobility which might limit the extent of migration. In order to develop policy prescriptions, further information would be required. Two potential barriers to mobility are adjustment costs associated with housing, and lack of information about interstate job opportunities.

Finally, as discussed in Section 2, labour mobility is not the only solution to geographic mismatch. An equally important issue is why firms do not move to take advantage of the pools of unemployed labour (possibly also at lower wages) in less buoyant regions.