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What does REMI say? sm New Estimates of Migration Using the P-VAR Approach Tackling the Chicken and Egg Problem of People Versus Jobs Dr. Frederick Treyz,

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Presentation on theme: "What does REMI say? sm New Estimates of Migration Using the P-VAR Approach Tackling the Chicken and Egg Problem of People Versus Jobs Dr. Frederick Treyz,"— Presentation transcript:

1 what does REMI say? sm New Estimates of Migration Using the P-VAR Approach Tackling the Chicken and Egg Problem of People Versus Jobs Dr. Frederick Treyz, CEO Sinan Hastorun, Research Economist

2 what does REMI say? sm Migration and Jobs Question Do People follow Jobs? – Labor Demand Factor Importance of Wages and Employment Opportunity OR Do Jobs follow People? – Labor Supply Factor Migration due to Amenities, Creative Class, Coolness of Place Question tackled for the U.S., Coefficient Estimates Obtained using State-Level Data for 1991-2007

3 what does REMI say? sm Labor Demand and Labor Supply Effects

4 what does REMI say? sm Distinguishing between LD Effect vs. LS Effect If Labor Demand curve shifts right, both w and N If Labor Supply curve shifts right, N, but w If both LD and LS curves shift right, N, but w may go up or down Only Original and Final Equilibria are observed in practice Extent of Demand vs. Supply Effects cannot be determined

5 what does REMI say? sm Model Variables Net Economic Migration, Relative Wage Rate and Relative Employment determined jointly ECMG, Δ RWR, Δ REO are all Endogenous Variables in this Model Vector AutoRegression (VAR) technique ideal for assessing contemporaneous relationships among a set of possibly endogenous variables

6 what does REMI say? sm The P-VAR Approach VAR regresses each variable on its own lag(s) as well as the lags of all other variables in the system Panel VAR (P-VAR) allows for VAR Regression Analysis to be conducted over time and across cases (states), yielding better estimates than Time-Series, single- state analysis

7 what does REMI say? sm First-order VAR Model z t k = τ 0 + τ 1 z t-1 k + f k + d t + ε t z t k : 3-variable vector that includes all endogenous variables τ 1 : 3x3 matrix of coefficients to be estimated f k : vector of country-fixed effects d t : vector of time-fixed effects ε t : white-noise error term

8 what does REMI say? sm Labor Demand RWR t+1 k = RWR t k + δ w (LD t k – LF t k ) Δ RWR t k = RWR t+1 k - RWR t k = δ w (LD t k – LF t k ) = δ w Δ REO t k Δ RWR t k = λ w + δ w Δ REO t k + ε t kd RWR t k : Real Relative Wage Rate in Region k at Time t REO t k : Relative Employment Opportunity in Region k at Time t LD t k : Labor Demand in Region k at Time t LF t k : Labor Force in Region k at Time t

9 what does REMI say? sm Labor Supply Δ LF t k = LF t+1 k - LF t k = ECMG t k + (Δ PRSR t k * N t ko ) LF t k : Labor Force in Region k at Time t PRSR t k : Short-Term Participation Rate in Region k at Time t ECMG t k : Net Economic Migration Rate N t ko : Population in Region k at Time t In the Long-Run Δ LF t k = ECMG t k

10 what does REMI say? sm Individuals Migration Decision Move to Region k if Indirect Utility of k is Higher than Average National Utility – if V t k > V t u – Thus, V t k / V t u > 1 V t k = c (EY t k ) ß V t u : Average National Utility at Time t EY t k : Expected Income in Region k at Time t

11 what does REMI say? sm Indirect Utility Function V t k = c (EY t k ) ß = c ( (E t k / LF t k ) * (Σ E t k / E * w t k ( RYD t k /YP t k ) ) ß = c ( REO t k * RWR t k ) ECMG t k = f( g m, RWR t k, REO t k ) E t k : Employment in Region k at Time t EY t k : Expected Income in Region k at Time t RYD t k : Real Disposable Income in Region k at Time t YP t k : Personal Income in Region k at Time t w t k : Wage Rate in Region k at Time t g m : long-term trend in Migration

12 what does REMI say? sm 3- Equation Migration Model ECMG t k = a 10 – a 12 Δ RWR t k – a 13 Δ REO t k + ß 11 ECMG t-1 k + ß 12 Δ RWR t-1 k + ß 13 Δ REO t-1 k + ε ECMGt k Δ RWR t k = a 20 – a 21 ECMG t k – a 23 Δ REO t k + ß 21 ECMG t-1 k + ß 22 Δ RWR t-1 k + ß 23 Δ REO t-1 k + ε RWRt k Δ REO t k = a 30 – a 31 ECMG t k – a 32 Δ RWR t k + ß 31 ECMG t-1 k + ß 32 Δ RWR t-1 k + ß 33 Δ REO t-1 k + ε REOt k

13 what does REMI say? sm Matrix Representation The 3-Equation VAR Model may be expressed as: β ij s: refer to the model coefficients to be estimated

14 what does REMI say? sm VAR Model with 1 Lag z t k = τ 0 + τ 1 z t-1 k + f k + d t + ε t z t k : the 3-variable vector including all 3 endogenous variables Net Economic Migration, Relative Wage Rate, and Relative Economic Opportunity τ 1: the 3x3 matrix of coefficients of contemporaneous relationships between ECMG, RWR, and REO

15 what does REMI say? sm What Does P-VAR* Do? Panel Vector AutoRegression Model uses GMM (General Method of Moments) Regresses each endogenous variable on its own lag(s) as well as the lags of all other variables in the system GMM Estimates for the U.S. are obtained by using Untransformed (Original) Variables as Instruments for Helmert-Transformed Variables (state fixed effects removed) *PVAR Code for STATA provided by Dr. Inessa Love of the World Bank

16 what does REMI say? sm P-VAR Application As one system: ECMG t k is regressed on ECMG t-1 k, Δ RWR t-1 k, and Δ REO t-1 k REO t k is regressed on ECMG t-1 k, Δ RWR t-1 k, and Δ REO t-1 k RWR t k is regressed on ECMG t-1 k, Δ RWR t-1 k, and Δ REO t-1 k Number of Lags chosen as 1 due to data constraints Also, increasing the number of lags does not yield better estimates – Results for 3 Lags are also provided P-VAR run on US 51-region data (50 States + D.C.) for 1991- 2007

17 what does REMI say? sm Panel-VAR in STATA Applying Panel-VAR in STATA requires the following initial steps prior to estimation due to Panel Data structure: 1.Time Fixed Effects (d t ) removed by Time-Demeaning all 3 variables in the system: Done by subtracting from each variable their means for each year 2.State Fixed Effects (f k ) removed by Helmert Transformation: Done by removing the forward mean for each variable for each state-year 3.Data set as Panel data in STATA by identifying the Cross- Section variable and the Time variable

18 what does REMI say? sm Lag 1 Results for Economic Migration (Equation 1) *b refers to coefficient, se to standard error, and t to t-test value Coefficients for lnRWR and lnREO are both statistically significant: β ECMGRWR = 0.056 β ECMGREO = 0.069 β ECMGt-1 = 0.272 PREVIOUS MODEL COEFFICIENT ESTIMATES: β ECMGRWR = 0.191 β ECMGREO = 0.192 EQ1: dep.var : ECMG b_GMMse_GMMt_GMM L.ECMG0.271952610.087971283.0913794 L.lnRWR0.05582110.023409182.384582 L.REO0.06921540.026562912.6057164

19 what does REMI say? sm P-VAR Results with 3 Lags EQ1: dep.var: ECMG b_GMM se_GMMt_GMM L.ECMG0.260237070.088371562.9448057 L.lnRWR0.100608810.042700552.3561479 L.lnREO0.108999340.053113212.0522079 L2.ECMG0.19075960.051171313.7278621 L2.lnRWR-0.066781020.04075271-1.638689 L2.lnREO-0.045156430.06462623-0.698732 L3.ECMG-0.006760370.0632835-0.106827 L3.lnRWR0.015487450.020250310.7648008 L3.lnREO-0.058269820.03590435-1.622918

20 what does REMI say? sm Variance Decomposition Analysis Percent of Variation in Row Variable explained by Column Variable (10 Years, 20 Years, and 30 Years Ahead) Rows for lnREO provides Variance Decomposition of Relative Employment Growth at 10, 20, and 30 Year Intervals for Migration Labor-Supply, Labor Demand, and Resident Labor-Supply Shocks

21 what does REMI say? sm Variance Decomposition Detailed Results sECMGlnRWRlnREO ECMG100.741496690.09600490.16249841 lnRWR100.210931350.78240490.0066638 lnREO100.129623360.20719820.66317843 ECMG200.722657640.12278420.15455817 lnRWR200.26412030.7158610.02001874 lnREO200.155227420.23203020.61274237 ECMG300.721717890.12368240.15459968 lnRWR300.265844830.71135960.02279554 lnREO300.157735960.23281450.60944959 13% of Employment Growth is explained by Migration Labor Supply 21% of Employment Growth explained by Change in Wage Rate 66% explained by Change in Employment Opportunity

22 what does REMI say? sm Impulse-Response Analysis Predicted Effect Over Time of Response of One Variable to a Shock in Another Variable, holding all others constant Response of Economic Migration, Relative Wage Rate, and Relative Employment in the 51 States to a One Standard Deviation Shock to Labor Demand, Migration Labor Supply, and Resident Labor Supply

23 what does REMI say? sm Impulse-Response Graphs

24 what does REMI say? sm Impulse-Response Results: 95 % Confidence Interval Lines Response of Employment to a Shock (3 rd Row) Response of Employment to Migration Flows is Negative in the 1 st Period, but moves slightly above 0 in later time periods Response of Employment to Wage Rate is Negative Initially, but turns Positive, rising at an Increasing Rate afterwards Response of Employment to Employment Opportunity is Positive throughout, albeit at a Declining Trend


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