Joe Weisenthal on jobs and migration

A thought-provoking tweet by Joe Weisenthal caught my attention, tackling the intriguing issue of what drives interstate migration.

This conundrum resembles the classic chicken and egg question—which factor truly initiates the cycle?

I perceive this debate as an illustration of the fallacy of composition—what holds true for individuals does not necessarily apply to groups. While Weisenthal suggests that individuals often migrate due to job availability, this only scratches the surface. The migration of businesses to states, particularly in the sunbelt, is equally significant. This trend is at least partially fueled by an influx of labor escaping regions with exorbitant housing costs, such as California.

Moreover, housing is not the sole consideration. Illinois, for example, is experiencing a population decline, despite its relatively affordable housing market. Factors like taxes and regulatory environments in states such as Texas also play a crucial role in this migration.

When companies evaluate potential locations for their operations, the availability of skilled labor is a key factor. A firm might find that lower wages can be afforded in Texas due to its reduced taxes and housing costs. Consequently, a company may opt to establish its headquarters in the Lone Star State even before hiring a single employee. From the individual worker’s perspective, their relocation appears driven by job prospects. Yet, these jobs exist precisely because employers anticipate a significant influx of workers to states like Texas, attracted by lower housing costs and favorable tax conditions.

At an aggregated level, it’s more logical to consider that employers are following the workers—relocating to areas with a substantial pool of talent willing to accept reasonable salaries. But on an individual level, it often seems that workers are following the employers, migrating to where jobs are abundant.

As is frequently the case in economics, this scenario exemplifies an equilibrium phenomenon. For instance, car dealerships tend to cluster in specific areas, attracting shoppers who want to compare various models. In turn, dealerships are drawn to these locations because they know a high volume of potential buyers will be present.

So, which is it—are the dealers attracting the shoppers, or are the shoppers luring in the dealers? In equilibrium, the answer is a resounding “both.”