Job trends — not state taxes — determine whether, and where, people move.
Americans are much less mobile than we think. Almost 70 percent of us who were born in the United States still live in the state of our birth, as only 1.5 percent of population moves across state borders each year, a rate lower even than that of our parents.
When we do move, it is most often in search of a new job, less expensive housing or a warmer climate — and not, as is often suggested, to find a state with lower or no income taxes.
Yes, people do move from high-tax states such as New York to no-income-tax states such as Florida. But the vast majority of such migrants are low- and moderate-income families, who are less affected than more affluent families are by state income taxes, a new analysis by Michael Mazerov of the Center on Budget and Policy Priorities has found. In any case, more people move away from Florida to states with income taxes, such as North Carolina and Georgia, than go in the opposite direction.
Arizona is one of many income-tax states that have been experiencing significant net in-migration. South Dakota and Alaska have no income tax, but have been losing population.
To be sure, these are simple correlations. But efforts to isolate the impact of state income-tax rates on mobility generally find it explains little about migration patterns.
What is the primary driver? One force, especially for older people, is the sun. Over the past two decades, cold-weather states such as Ohio, Pennsylvania, New Jersey and Michigan have lost significant population to Sun Belt states. A second motivator is housing; people who move from cities in California or New York to those in Texas or North Carolina typically benefit from substantially lower housing costs. (That cost reduction is often far larger than any income-tax savings, by the way.)
The biggest draw of all for someone of working age, though, is a job. Nearly a third of Americans who relocate across state lines say they are moving for a “new job or job transfer.” And that, in turn, seems to explain why cross-state mobility has diminished.
In the late 1980s, about 3 percent of Americans moved to a new state each year. New research by Raven Molloy and Christopher Smith of the Federal Reserve and Abigail Wozniak of the University of Notre Dame links the current decline to changes in the labor market, rather than shifts in the cost of moving or demographic forces.
Job turnover has been dropping, despite the popular myth to the contrary. Molloy and co-authors find a strong link between lessening interstate migration and downward trends in the share of workers who move from job to job. And it appears this may be because changing employers no longer leads to as much gain in wages as it once did.
All of this reveals that it’s mostly futile for state policymakers to alter their income taxes in hopes of luring people from other states. And it also exposes how much we have to learn about what’s causing job-market transitions to slow down. One troubling possibility is a decline in dynamism in the U.S. economy. A more auspicious explanation is that workers are increasingly able to find an ideal employer early in their careers, so that they have less need to seek a job elsewhere later on.
Until we know more about what’s driving the drop in job switches, we can’t see what’s keeping people from moving from state to state or whether we should be worried about it. For any bright young economist, this should be a luring question.
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