Wages, Wellbeing and Location: Slaving Away in Sydney or Cruising on the Gold Coast

Abstract

We analyse the relationships between subjective wellbeing (SWB), wages and internal migration. Our study addresses whether people make (revealed preference) location and migration decisions based on SWB and/or wage prospects. We present both a theoretical intertemporal location choice model and empirical analyses using the Australian longitudinal HILDA dataset. Our theory predicts considerable heterogeneity in location choices for individuals at different life stages depending on their individual characteristics, including their rate of time preference. We find that people's location at a point in time is determined largely by their previous period's location reflecting high moving costs. In addition, labour market conditions affect location choice and influence individuals' decisions to migrate out of an area. Focusing on migrants, we find that place-based SWB is a highly significant ex ante predictor of a migrant's chosen location. Furthermore, we find a significant and sustained ex post uplift in individual SWB for migrants, which holds across a range of sub-samples. By contrast, wage income responses show much less significance, albeit with heterogeneity across groups. The estimated pronounced upturn in SWB for migrants substantiates the usefulness of SWB both as a concept for policy-makers to target and for researchers to incorporate in their studies.

Moving Towards Happiness?

“…Grimes et al. () examine the impact of happiness (and other determinants) on intra‐country migration flows using Australian longitudinal data. They separately model determinants of emigration (to other parts of Australia) and immigration (from other parts of Australia).…”

“…In the formulation of Grimes et al. (), people make inter‐temporal life‐cycle decisions in which higher income in some periods may be used to purchase greater happiness in others. Under this formulation, migration may respond to both wages and happiness without necessarily contradicting the hypothesis that happiness and utility are conceptually identical.…”

“…Instead people may gain utility in additional (but unspecified) ways from living in unhappy cities implying that happiness needs to be supplemented by other determinants when modelling migration flows. Grimes et al (2017) examine the impact of happiness (and other determinants) on intra-country migration flows using Australian longitudinal data. They separately model determinants of emigration (to other parts of Australia) and immigration (from other parts of Australia).…”

“…Happiness tells us about the life circumstances at origin and the expected life circumstances at destination. It relates to the idea that utility does not only depend on material factors but is also influenced by non-material factors (Chen and Rosenthal, 2008;Glaeser and Gottlieb, 2009;Grimes et al, 2017).…”

“…In the formulation of Glaeser et al (2016), for wages to be relevant to the migration decision as well as happiness, then happiness should be regarded as just one component of the utility function (rather than being equal to utility). In the formulation of Grimes et al (2017), people make intertemporal life-cycle decisions in which higher income in some periods may be used to purchase greater happiness in others. Under this formulation, migration may respond to both wages and happiness without necessarily contradicting the hypothesis that happiness and utility are conceptually identical.…”