Essays on Individual Responses to Labor Market Conditions and Policies

Abstract

This dissertation examines how individuals respond to changing conditions and policies in the labor market, with a particular interest in understanding economically motivated migration and labor force attachment.

I first turn to the question of labor mobility. There is long-standing academic and policy interest in the issue of economically motivated geographic mobility. I examine the recent context of localized "fracking" booms in the United States to explore the migration response to positive labor demand shocks. Using data from 1999 to 2013, I show that local fracking led to large increases in potential earnings and employment rates, as well as a sizable migration response. But, this average migration effect masks substantial underlying heterogeneity in migration behavior across both demographics and regions. Migrants to fracking areas were more likely to be male, unmarried, young, and less educated than movers more generally. Furthermore, both in- and out-migration rates increased with fracking and both flows were driven by the same demographic groups, suggesting fracking resulted in short-term migration and increased churn. An instrumental variables analysis using fracking conditions to instrument for earnings suggests that a ten percent increase in average earnings increased in-migration rates by 3.8 percent in North Dakota fracking counties, as compared to only 2.4 percent in the West, 1.6 percent in the South, and 0.5 percent in the Northeast. The difference across regions is statistically significant; robust to housing market controls, geographic spillovers, and other various specifications; and is only partially explained by differences in commuting behavior, initial population characteristics, or a non-linear relationship between earnings and migration. There is some evidence that heterogeneous information flows might be driving the heterogeneous migration response. This implies that lack of information might be dampening rates of migration to economically favorable labor markets.

I next examine how labor market information affects these types of economically motivated migration decisions. Migration is a human capital investment that allows individuals to encounter more favorable labor markets. I exploit county-level variation in exposure to news about labor markets impacted by fracking, to show that access to information about potential labor market opportunities affects migration. I use pre-fracking newspaper circulation rates and content from national news outlets to capture exogenous variation in exposure to news about fracking in a particular destination. I then isolate the effect of news exposure by comparing migration flows to the same destination from differentially exposed origin counties. Exposure to newspaper articles about fracking increased migration to the areas mentioned in the news by 2.4 percent on average. News exposure also increases commuting to fracking counties. Exposure to TV news has a similar impact, and positive news about fracking increases migration more than negative news. As further evidence that news matters, Google searches for the term fracking and the names of states specifically mentioned spike after TV news broadcasts about fracking. Migration responses to news about fracking are largest from counties experiencing weak labor markets, suggesting these areas see the largest benefits to information provision.

Finally, I examine how a well known government policy aimed to incentize labor force participation -- the Earned Income Tax Credit (EITC)-- affects labor force transitions. Less-educated single women frequently transition in and out of the labor force. Although there is evidence that the Earned Income Tax Credit (EITC) increases annual labor force participation, it is unclear how it affects these high frequency, within year employment decisions and entry and exit. By exploiting the panel nature of the Current Population Survey, I overcome challenges associated with compositional changes and estimate the impact of increases in EITC generosity on employment transitions. EITC expansions induce less-educated single women who were previously attached to the labor force to work more months, leading stronger labor force attachment and more annual weeks worked. This leads to less annual exit, suggesting that the documented impact of the EITC on labor force participation rates in part operates by keeping previously employed single women in the labor force. This highlights the importance of understanding how income support programs affect not only labor force participation, but transitions as well. Employment decisions respond to increases in the maximum EITC credit eligible to receive in the current year, rather than the maximum credit eligible to earn, which differ because the EITC is a tax credit transferred with a one year lag. This would be consistent with workers basing their current work decisions on their lagged experience with the EITC. Further evidence additionally suggests that the employment response to the lagged EITC amount is likely due to information about the return to work, rather than to the relaxation of liquidity constraints.