Canadian cities need talented workforces, but for many, attracting and retaining good workers is a tough task. Consider this article on my home town of London Ontario – which is currently working on a development plan for the city – and this tweet in reaction from economist Mike Moffatt (Western) that expresses concern about brain drain from the city:
This post explores labour mobility and asks whether local governments can implement policies to promote it. I provide the following four considerations, or cautions, for local policymakers: First, don’t expect moving decisions to be overly responsive to policy. Second, policies to promote migration will inevitably reward some high-earners who were already mobile before the policy changes. Third, know your competition and focus on your comparative strengths. Finally, adopt a macro perspective.
Consideration 1: Don’t expect moving decisions to be overly responsive to modest policy changes.
People move for lots of reasons, including love, money and new opportunities. And there are plenty of reasons not to move, like inertia, fear of the unknown, relationships, because it’s inconvenient, etc.
Decisions to move primarily occur when contemplating job offers or new opportunities, like school and travel, and around major life events such as marriage, divorce, births and deaths.
This simple economic framework (which I’m adapting from the Melitz model of exporting) helps to think about labour mobility decisions as driven by a comparison of benefits and costs.
Anyone who’s moved knows it’s a hassle. There’s a big fixed cost of moving, which economists might label a loss of ”œlocation-specific capital”. People own homes, have families and social networks in their local communities. Moving can require selling your house and finding a new place to live, traveling to see your family, and having some friendships fade with added distance and the passage of time.
But there’s a potential benefit from moving. To be concrete, think of this as your wage from a new job in a new place, and assume this benefit increases with the person’s ”œproductivity” (or education or innate motivation, etc.).
In this set-up, a diagram can cleanly separate movers and stayers.
- Movers are the higher-productivity group who have the most to gain from moving – which, of course, is why they leave.
- Stayers might also have a better job in another city, but it doesn’t compensate them for what they’d give up by moving – so they stay.
Therefore, in this simple example only the people with the best opportunities move. Their gains cover the moving costs and still leave them better off. Otherwise, they’d decline the job and stay put. There are certainly exceptions, but do the location decisions of people you know fit this basic pattern?
While the diagram emphasizes earning potential, migration also displays strong life-cycle patterns: People are most mobile in their 20s and early 30s, and the figure below shows that roughly 2% of Canadians in their late 20s moved inter-provincially in 2012. Mobility then steadily declines as people age, get married, start families and develop stronger local roots. Also note that men in Canada are more mobile than women during in their prime-working years, but slightly less afterwards.
Source: Statistics Canada
This discussion suggests that migration policies are most likely to influence younger people (in their 20s and early 30s) and those with the highest-earning potential. Alternatively, it’s unlikely that people older than, say, 35 will respond much to policy.
We’ve determined who’s likely respond to policy, but how might policies encourage migration in the first place?
To get more movers, you need raise the benefit of moving (e.g., cut taxes) and/or lower the cost (e.g., harmonize credential recognition, offer tax credits for movers).
I’m skeptical that moving decisions would respond much to modest policy changes, or that the main policy levers reside at the local level. This is not to suggest that we can’t or shouldn’t encourage migration at all levels of government. We should, for example, lower regulatory barriers that inhibit moves across provincial borders. But policymakers, particularly local ones, should have modest goals since government policy is only one part of a complex moving decision.
Consideration 2: Policies to promote migration will reward those who were already mobile before the new policy.
The distributional impacts of migration-promoting policies should also be carefully considered. Conventional policy discussions view cities as competing for ”œthe best and brightest”. There’s truth to this as the upper-end of the distribution is likely more mobile. But note that the marginal group in the diagram above " those who’s moving decisions are most likely to be changed by policy interventions " are not those at the very top of the distribution. Instead, it’s those slightly below the top (who are still likely above-average-earners).
The point is that the very top are already mobile without policy changes. So any policy to promote migration will necessarily reward some well-off people who are moving regardless of the policy. This fact " which applies to many types of policy interventions " means policies will be more expensive than if we could mange to reward only new, incremental movers.
Consideration 3: Know your competition and focus on what you do well.
The competition for most Canadian cities comes probably from smaller cities in surrounding areas. For instance, I don’t view London as competing with much bigger cities like Toronto, Calgary, Vancouver or Montreal for talent. The real competition is from smaller and similar-sized cities in Southwestern Ontario like Strathroy, Kitchener-Waterloo and Windsor.
Scale matters. Large differences in population bases mean that London officials are unlikely to draw people from significantly larger cities simply by improving public transit, parks or sports facilities. These policies are desirable in their own right but shouldn’t be presented as a path to achieving other objectives.
London could also focus on growing specific areas of its comparative advantage like universities, hospitals and manufacturing.
Consideration 4: Your loss is someone else’s (larger) gain.
For the city that loses a higher-earning taxpayer, out-migration may be viewed as a bad thing. But this person moves somewhere " typically in Canada " and we should generally expect that with voluntary moves, people think their lives will be better in the new place. If they’re right, then they can create a larger gain for the receiving city than the loss for the sending city.
So a macro perspective encourages migration. Of course, this doesn’t help cities like London as the practical problem is that it’s nearly impossible to design a compensation scheme to transfer money between sending and receiving cities.