Internal U.S. Migration and Consumption Dynamics: A Panel Data Analysis

Abstract

Using the Kilts Nielsen Consumer Panel (KNCP), this paper documents novel empirical findings on expenditure and income growth upon migration. First, movers' KNCP expenditures relative to non-movers' decline by 6% during a year before the move, and then increase by 9% during a year after the move. Thus, there is a 3% net increase in relative expenditures from a year before to a year after the move. This net change in movers' relative expenditures is consistent with that in movers' relative earnings, which I estimate to increase by 3% over the same 2-year window around the move time. The V-shaped pattern in movers' relative expenditures departs from predictions of the standard permanent income hypothesis (PIH), which many migration models in the literature implicitly assume. If movers can expect an income increase after moving, the PIH predicts movers to raise their spending upon deciding to move, not subsequently. I see similar spending responses to moving for non-storable foods, implying that the V-shaped response does not reflect moving households' dissipating then accumulating inventories. Next, I document that movers' income growth displays higher variance than non-movers', both before and after moving. Movers' expenditure growth also exhibits higher variance than non-movers before and after the move. These findings suggest that movers have higher precautionary savings motives than non-movers. Hence I explore whether a model beyond the standard PIH--featuring precautionary savings motives and a borrowing constraint--is consistent with the documented data moments. Qualitatively, the model can explain both the pre-move decline and post-move increase in movers' relative expenditures. Quantitatively, the simulated results show that precautionary savings from income risk can explain 40% of the average post-move consumption growth of movers.

Keywords: Migration, expenditure, precautionary saving

JEL Classification: D15, E21, J61, R23