California ; Emigration and immigration ; West (U.S.) ; Federal Reserve District, 12th

Joe Mattey

English

Research Papers in Economics

FRBSF WEEKLY LETTER
Number 94-43, December 23, 1994
Effects of California Migration
-50
-100
During California's deep and prolonged reces-
sion, the state saw a sizeable net out-migration to
other states. This was in sharp contrast to the net
inflowofpeople to California from other states
during the boom years of the 1980s. A large por-
tion of those leaving California in recent years
have gone to other western states in the District.
The influx of Californians augmented the supply
of workers in those states and, thus, facilitated
economic growth, which in some states has been
very rapid. Arizona, Idaho, Nevada, and Utah,
for example, have been among the fastest grow-
ing states in the United States over the past year.
As the California economy recovers, a reversal
of the migratory flows is possible. This Weekly
Letter describes the order of magnitude ofthe ini-
tial migratory outflow from California in order to
gauge the impact so far on other western states
and to highlight the potential importance of a
migratory reversal on the composition of activity
within the District.
We conclude that the initial migratory outflow
from California was particularly important to Ne-
vada, Oregon, and Washington, where net in-
migration appears to have supported a significant
share of the growth in civilian employment over
the past several years. In the two fastest growing
states in the District, Idaho and Utah, the net in-
migration was relatively modest compared with
total employment gains. However, the extent of
migration from California to Idaho still was size-
able relative to the number of original residents
there. If the California recovery progresses well
and the migratory pattern reverses, employment
growth is likely to be restrained noticeably in
Idaho, Nevada, Oregon, and Washington.
1990-1993 migration from California
Unfortunately, there is no complete, exact in-
formation on the number of migrants from Cali-
fornia and their job histories. The best available
annual data on state-to-state migration patterns is
from IRS records of address changes between tax
filing years; the most recent reading from this
source pertains to early 1993. Approximation
methods must be used to translate the move-
ments of people into job figures.
According to the IRS data, during most of the
1980s, net migration to California from other
states was large, nearly 100,000 people a year.
But in the 1990s, this pattern was reversed: From
1990 to the first quarter of 1993, California had a
net outflow of 381,000 people to other states (see
Figure 1). Of this number, 317,000 account for
movement to other states in the Twelfth District,
with the biggest numbers recorded in Washing-
ton, Oregon, and Nevada.
Figure 1
California Net Domestic Migration
Thousands
of Address
Changes
100 ~
50 1.1111 o -t==-r=Y"'=-r=Y"'-"'=~=T"""':rrT.':""",."",,:n
..I ...i ..! ..i ..! ..i ..I ..i ..11
~I
-150
-200
Looking at these numbers relative to the original
population in the destination state shows the
largest inflow of California migrants was to Ne-
vada-it amounted to about 5 percent of the
1990 population; Oregon had the second largest,
at 3 percent; and for every other state in the Dis-
trict, except Hawaii and Alaska, the inflow from
California amounted to at least 1 percent of its
1990 population.
To get a rough estimate of the impact of the Cal-
ifornia exodus on employment in other TwelfthFRBSF
District states, we first estimate the proportion of
workers in the migrant population. The general
rule-of-thumb is that the civilian labor force is
about half the size of the population. This brings
the estimate of the size of the labor force that
moved from Cal ifornia to other Twelfth District
states to half of 317,000, or 158,000 potential
workers. Refinements to the calculation could
move this estimate either up or down. On the
one hand, not all migrants looking for work find
jobs. On the other, the calculation ignores the mul-
tiplier effects of in-migration; that is, the spend-
ing by the new arrivals increases local demand
and thereby increases the job prospects of the
original residents.
To place these participation-adjusted migration
figures in perspective, we express them as a per-
cent of the total increase in employment in the
other eight District states from 1990-1993. For
these eight states as a whole, the actual employ-
ment increase was 420,000 workers. This implies
that the estimated proportion of employment
change facilitated by in-migration from California
was 38 percent; translated into growth rates, the
California exodus was associated with 0.6 per-
centage point of the 1.7 percent annual rate of in-
crease in employment in the District (excluding
California).
The impact varies among states in the District.
Figure 2 shows that the largest relative impact
was on Nevada, where the estimated increase in
the supply of labor due to the net migration from
California equals 1.6 percent of employment in
the state at the beginning of the period; that is
more than half of the increase in employment for
the state. The migration of workers from Califor-
nia also is estimated to have been large relative
to overall employment gains in Arizona, Oregon,
and Washington.
For the other states in the District, net migration
from California was equal to a smaller fraction of
the actual rise in total employment. This is true
even for the states like Alaska, Idaho, and Utah,
which had rather robust employmentgrowth,
though for Idaho the fraction in absolute terms
is the third highest in the District.
Recent research, particularly Gabriel, Shack-
Marquez, and Wascher (1993), suggests that mi-
gration patterns are well-explained by models
that emphasize the differences in unemployment
rates, wages, and house prices between the place
of origin and the destination. The California pat-
tern seems to bear this out: Better economic
opportunities in other District states undoubtedly
Figure 2
Civilian Employment Change, 1990-1993
Percent Change
(Annual Rate)
4
3.5
3
2.5
2
1.5
0.5
AK AZ HI 10 NV OR UT WA
El Estimated contribution of California migration to
labor supply
Figure 3
Unemployment Rate Differential
(Other12th District less California)
Percentage
Points
1.0
0.5
:~1.:5 0
0
t="-r--.""""Y'=..,J~="=~::TTrn ::.:I.I : :~:~..I :I ::i::~I ::1 •........... : rmlml-r=~,:p
:::: II
-2.5
-3.0
-3.5
explain part of the directional pattern of migra-
tion from California in recent years. As illustrated
in Figure 3, the average unemployment rate in
other District states dropped below the California
unemployment rate in 1990, and this differential
continued to widen, reaching about 3 percent-
age points this year.
The relatively low house prices in many ofthe
other states in the West also would have beenattractive to Californians who chose to move. On
this point, a recent Weekly Letter (94-23) points
out that in the 1980s housing prices in major Cal-
ifornia markets rose sharply relative to those in
markets in other western states. By 1989, for ex-
ample, the median home price in San Francisco
was nearly fourtimes the median price in Salt
Lake City.
The distance between places also has a very
strong impact on the pattern of migration. From
this perspective, it appears that migration from
California to Alaska, Hawaii, Idaho, and Utah
was inhibited by the longer distances involved.
In contrast, Nevada saw a large influx of workers
from nearby Southern California, where the un-
employment rate has been particularly high.
Netoutflows continue
More recent data on interstate migration from the
California Department of Motor Vehicles (DMV)
can help us get a more current reading on migra-
tion. Using the California State Department of Fi-
nance's rule-of-thumb of 1.5 persons per driver's
license, the 126,000 net address changes to other
U.S. states during 1993.Q2-1994.Q2 implies that
the state lost about 190,000 persons from net do-
mestic migration in the most recent fiscal year. It
is clear from these data that a reversal ofthe net
outflow from California had not begun by early
1994, when the unemployment rate in California
still was high relative to other states. In the fiscal
year ending in mid-1994, the relatively large net
outflows of people from California to Arizona,
Idaho, Oregon, and Washington continued at
about the previous year's pace, and the net out-
flow to Nevada picked up a bit.
Effects of a California recovery
The possibility of a reversal ofthe migration from
California as the state's recovery takes hold raises
several questions in predicting economic activity
in the Twelfth District states: First, how much
would the negative influence on other states of
a reversal of migration from California be offset
by the positive effects of increased demand from
California residents? Earlier work by Cromwell
(1992) suggested that the positive demand link-
ages between California and other District states
are relatively strong. Using datafrom 1947-1991,
Cromwell quantified the positive co-movement
between unpredicted movements in California
employment growth and unpredicted movements
in employment growth in other District states.
More recently, the employment growth rates in
Cal ifornia and other Districtstates have diverged
sharply, and the evidence of strong, positive link-
ages has become less compelling. What remains
clear is that with more than 30 million people in
the California market, even relatively weak link-
ages on a per capita basis (per California person)
could translate into big demand effects on west-
ern neighbors.
Second, which states would be most affected by
a reversal of the California exodus? According to
the statistics presented above, the biggest im-
pacts of a migratory reversal most likely would
be on Idaho, Nevada, Oregon, and Washington.
Third, can we predict the timing and magnitude
of any reversal of the overall migratory flows from
California? Answering this question involves dis-
entangling the contributions of cyclical factors-
such as the state's relatively high unemployment
rate-from the contributions of longer-run factors
-such as the high cost-of-living and concerns
about crime, pollution, educational quality, and
the overall state and local fiscal situation. Simple
models that explain net migration as a function of
unemployment rate differentials only, such as the
one described by Hensley and Chin (1994), im-
ply that most of the recent net out-migration from
Cal ifornia was a response to better job prospects
elsewhere. Richer place-to-place migration mod-
els imply that some of the recent out-migration
from California was due to factors other than job
prospects, but the unemployment differential effect
remains sizeable. Thus, the limited available in-
formation suggests that as the California recovery
progresses, labor force growth in other District
states will be restrained by fewer in-migrants
from California.
Joe Mattey
Economist
References
Cromwell, Brian A. 1992. "Does California Drive the
West? An Econometric Investigation of Regional
Spillovers:' Federal Reserve Bank of San Francisco
Economic Review 2, pp. 15-30.
Gabriel, Stuart A., Janice Shack-Marquez, and William
L. Wascher. 1993. "Does Migration Arbitrage Re-
gional Labor Market Differentials?" Regional
Science and Urban Economics 23, pp. 211-233.
Hensley, David, and Kathryn Chin. 1994. "Reversal of
Fortune Out West?" Salomon Brothers Real Estate
Research report on RegionalEconomics, August 11.
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A Market-Based Approach to CRA Neuberger/Schmidt
Manufacturing Bias in Regional Policy Schmidt
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Trade and Growth: Some Recent Evidence Trehan
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Interstate Banking and Risk Levonian
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Exchange Rate Arrangements in the Pacific Basin Glick
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Explaining Asia's Low Inflation Moreno
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Does California Drive the West? An Econometric Investigation of Regional Spillovers:' Federal Reserve Bank of San Francisco Economic Review 2,

Does Migration Arbitrage Regional Labor Market Differentials?&quot;

Effects of California migration

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Effects of California migration

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