Specification issues to be resolved

As with most empirical studies, the devil of the project is in the detail. We list in this section a range of technical, conceptual, or modelling issues that will need to be dealt with in some way by a credible applied study.

International Migration

Many existing studies of migration and regional adjustment have focused solely on internal migration, ignoring the adjustment that takes place via external migration. As we have noted earlier, this (lack of) treatment of border flows is more of a problem in the New Zealand context than for other larger countries.

Two main issues arise if we are to incorporate external flows into an analysis of migration and regional labour markets in New Zealand:

• Labour Market Attributes: Ideally, we would like to treat foreign countries in the same way as we do any other location – using information on relative labour market conditions, attractiveness, and frictions. In practice, it is not possible to get as complete information on all potential source and destination countries as

we have available for New Zealand locations. Similarly, it is not clear what distance or population measures should be chosen to associate with flows to the rest of the world.

• Missing Emigration rates: If we are to use Census data, which contains retrospective 'prior location' questions, there is no information on people who had left New Zealand, as they were not present on Census night.100

The way that these two issues are resolved depends on how misleading the omission of external flows would be for our inferences on the role of migration as a regional adjustment mechanism. Figure 3.2 shows that for the 1991-1996 period, international inflows occur at a relatively low rate that does not vary greatly across regions (with the exception of non-UK non-Australian inflows into Auckland). There is therefore limited scope for external inflows to serve as a general regional adjustment mechanism. Figure 3.3 show that the pattern of external inflows across regions is similar to the pattern of (estimated) external outflows, again with the exception of Auckland. Although external migration may play a significant role in facilitating to changes in relative labour market conditions between countries, it appears to play a more limited role in facilitating labour market adjustment between locations within New Zealand. While this suggests that an analysis of internal flows alone is likely to be informative for the question at hand, we consider that it is still prudent to check the sensitivity of any inferences to the inclusion of external flows.

Estimates based on gross internal migration flows alone could be used as a base specification. Including the data that is available on inflows from outside New Zealand entails adding one observation for each area in New Zealand, capturing the flow from the rest of the world to each area. Area attributes could be entered as sample means, and then the relative attractiveness of New Zealand compared with the rest of the world absorbed by a dummy variable/ fixed factor. If estimated external outflow rates are available, these could be treated symmetrically101.

Commuting

Short term migration (essentially residential moves) and commuting are substitutes. A credible study would need to either model commuting patterns explicitly, or find a way to focus attention on non-residential moves. A plausible way to reduce the influence of residential moves on estimates is to exclude short-distance moves. For instance, moves of less than 10km or less than 20km could be excluded. Figure 3.1 shows that a 10km limit excludes around 50 percent of moves, and a 20km limit excludes around 60 percent of moves.

Endogeneity of labour market conditions

A well known issue associated with estimating flows from stock measures, as is done when migration flows are modelled as a function of labour market conditions and population sizes, is that choices need to be made about when to measure the stocks, and that these choices can matter. For instance if we wish to understand migration flows between 1991 and 1996, we could use relative wage levels from 1991, or from

100

It is possible to estimate outflows by using estimated mortality rates to isolate the unexplained population loss, as James Newell has done at the Regional Council level for flows between 1991 and 1996.

101

Given the inevitable additional noise that is introduced by the modelling of outflows, it would be informative to report estimates of key labour market parameters based on internal flows and external

1996. Measures from 1991 may miss subsequent wage changes that induced migration flows. However, to the extent that migration influences wages, estimates based on 1996 wages would confound this effect with the influence in the other direction (wages to migration), which is what we are trying to estimate. One way of steering through this dilemma is to instrument for 1996 wages (or 1991-96 wage changes) using information available in 1991.

Adding-up constraints

Estimates from a spatial interaction model will not necessarily 'add-up' unless additional constraints are imposed. When modelling internal migration flows, total outflows are equal to total inflows, since everyone has to be somewhere! There is a range of constraints that have been applied in the literature. Singly constrained models require that the sum of estimated inflows equals actual total inflows, or that the sum of estimated outflows equals actual total outflows. A 'doubly-constrained' model requires both. If the estimates are going to be used for simulation or prediction, it is important that these adding up conditions are taken seriously (see Nijkamp and Poot (1987)). Symmetry of inflows and outflows

Modelling gross migration flows can allow for relative attractiveness to affect inflows and outflows differently. Modelling net flows imposes symmetry – the effect on inflows is assumed to be exactly the opposite of its effect on outflows. Gross flow modelling also reveals more about the underlying influences on flows. In New Zealand, where migration effectiveness is relatively low, it is particularly important to use information on two-way flows, and thus to model gross flows.

Level of aggregation

The relationship between labour market conditions and migration flows may differ at different spatial scales. Table 3.5 shows that the estimated patterns of persistence in labour market conditions is different for area units compared with regional councils. No level of aggregation is of greater importance or interest a priori if the objective is to understand the links between migration and labour markets. Care is however needed when drawing inferences, given that there is likely to be more idiosyncratic noise in data on smaller spatial units.

It would be useful to produce estimates for area units, TLAs and Regional Councils.