Abstract:
The percentage of people who were born near where they live, a proxy for people's local ties, varies greatly across the United States. In areas with higher levels of these local ties, migration is less responsive to changes in local labor demand. Across a wide class of models of spatial equilibrium, lower migration elasticities make subsidies to local areas more efficient, since they change fewer people's locations. These two facts suggest that subsidies to areas with a declining populations are more efficient than subsidies to other areas. A parametric model illustrates how local ties develop in areas with declining populations, and provides a mechanism that reallocates people's local ties to reflect changing economic geography. Areas with declining population house mostly people who were born locally, since these people are willing to endure the lower wages, lower amenities, and higher rents that go along with a declining population. People outside are reluctant to move in after small changes in wages, since real wages are well below national averages. The process of reallocating local ties takes several generations, depending on the size of a shock.

Link to the paper:
http://mikezabek.com/pdf/LocalTies.pdf

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