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Incentives for relocating to regional Australia: estimates using a choice experiment

By Aaron Nicholas, Chandra Shah Research report 23 June 2014 ISBN 978 1 922056 95 5

Description

How individual and job characteristics are related to a willingness to move location for work is the focus of this study, which is unique in that it estimates the monetary value of incentives required. A discrete choice experiment analyses the stated preferences of a sample of people from two states in Australia. The findings indicate that some groups require a wage incentive to move, while others do not. Policies promoting geographic labour mobility are more likely to succeed if demand-side factors such as the skills and experience that employers need are taken into account. This work is one of three projects undertaken by the Centre for the Economics of Education and Training at Monash University as part of their three year (2011-13) research partnerships with NCVER to explore the geographical dimensions of social inclusion and VET in Australia.

Summary

About the research

Inter-regional migration plays an important role in regional labour markets; for instance, by moving labour from a region with high unemployment to a region where there are unfilled vacancies.

The study uses a discrete choice experiment to investigate the willingness to move for work of a sample of individuals from New South Wales and South Australia, states which have had pockets of relatively high unemployment, to Karratha (Western Australia) and Emerald (Queensland), two regional centres with relatively high demand for labour in 2012. The aim is to understand how individual and job characteristics are related to the willingness to move.

The study is unique, in that it estimates the monetary value of the incentives required for individuals to accept job offers in a region different from that in which they currently live.

This paper reports on one of three topics that comprise a three-year program of work: ‘Geographical dimensions of social inclusion and VET in Australia’.

Key messages

  • Some groups are more prepared to move than others. In particular, individuals who are looking for work (both employed and unemployed) indicate a strong willingness to relocate for work.
  • Individuals are more willing to move for jobs that: are ongoing or longer-term rather than fixed-term; provide training; or involve a fly-in/fly-out contract rather than permanent relocation.
  • Some groups require wage incentives to accept a job in a regional location but others require no such incentives.
    • The size of the incentive depends on individual characteristics as well as on the job conditions being offered; for example, the preference for fly-in/fly-out and training provision in the job contract reduces the size of any wage incentive that needs to be offered.

This study suggests that policies promoting geographical labour mobility are more likely to succeed if job offers include upskilling and reskilling opportunities and contracts that are not short-term. Addressing the demand-side factors, such as matching job seekers’ skills and experience to employer requirements, can also improve labour mobility.

Rod Camm
Managing Director, NCVER
 

Executive summary

Unemployment varies across the regions of Australia. Inter-regional migration has an important but variable adjustment role across these regional labour markets. If, by offering incentives, individuals can be encouraged to move from regions with high unemployment to regions where there are unfilled vacancies, then there is the potential for improving social inclusion.

Wages generally rise in a sector that is profitable and which is having difficulty attracting labour, with possible spillover effects in complementary sectors in the same region. If labour from other regions, especially those with high unemployment, does not move to take advantage of these opportunities, then it could either mean that the applicants lack the appropriate skills and experience that employers require; or that individuals with the appropriate skills and experience are unwilling to move without additional incentives or they lack information about the job opportunities. This study is about the latter, with a focus on willingness to move for work.

The study investigates the incentives, in wage-equivalent terms, for individuals from New South Wales and South Australia, states which have had pockets of relatively high unemployment, to accept jobs in Karratha in Western Australia and Emerald in Queensland, two regional centres with relatively high demand for labour in 2012.

The importance of this research is underscored by the often ad hoc nature of policies seeking to move people for work from one location to another. By estimating the monetary value of an individual’s willingness to move, we would know whether such policies are economically feasible and for what kind of worker.

The study uses a discrete choice experiment to collect data on individuals’ intentions to relocate for work, if offered jobs with certain characteristics. The technique is suitable for investigating individual preferences, which are otherwise difficult to identify, measure and compare. In particular, we are able to estimate the relative importance of the various job characteristics that influence the job choices of workers in wage-equivalent terms. Such information can be useful for developing policies on recruitment and retention in locations with skill-shortage problems.

In this study, a sample of people in the labour force in New South Wales and South Australia who are aged 18—64 years and who are not studying full-time are offered hypothetical jobs in either Karratha in Western Australia or Emerald in Queensland, two regional locations where there have been high rates of job vacancies.

Each individual in the sample is presented with hypothetical scenarios, from which they are asked to make a choice of one of two job offers or, alternatively, reject both job offers. The job offers in each scenario vary by the wage being offered, the type of relocation involved (fly-in/fly-out from Brisbane or Perth or permanent relocation to the region) and the type of contract (six months fixed-term without training; ongoing with training; or ongoing without training). In the contract with training, the first three months involves on-the-job and off-the-job training, during which period the worker receives only half their wages.

The analyses of the data from the experiment show that the typical person most likely to move for work is young, male, single, not born in Australia, looking for a new job, knows people other than family at the location where the job is offered and does not own a house. Unlike other studies, we do not find education background to be a significant factor in this decision, possibly because we directly control for the labour demand factors through the design of the choice experiment.

The distance between where the person currently lives and where they are offered a job is not a significant factor in the decision to move. This is because travel to and from these locations is likely to be by air and individuals probably perceive distance in flying time. Individuals consider flight times to these locations as being not significantly different.

The amount in wage-equivalent terms that a person is willing to forgo (or trade off) for a particular job attribute is calculated as the marginal willingness to pay (MWTP). For example, if a person is willing to forgo $1000 in wages for a job that includes training compared with a similar job that does not include training, then the marginal willingness to pay for training is $1000. A negative MWTP reflects the compensation (or wage premium) expected for accepting a job with that particular attribute.

The marginal willingness to pay for a fly-in/fly-out over a permanent relocation contract is about $10 504. While this could be related to the non-pecuniary benefits of living in Brisbane or Perth compared with living in the two regional locations, the trade-off is relatively small when the savings from accommodation and meals provided while rostered for work on a fly-in/fly-out contract are factored into the calculation.

The marginal willingness to pay for an ongoing contract over a six-month temporary contract is equivalent to $11 236 per year, which reflects the higher risks of short-term contracts, in terms of periods of unemployment and/or possible relocation costs after the contract expiry.

Individuals are willing to trade off $6902 in wages to secure a job that offers training compared with a job that does not. The training decision can be viewed as an investment in human capital as individuals are prepared to forgo short-term loss, in terms of a 50% cut in wages in the first three months, for higher wages in the long-term.

A wage premium is required to attract women ($29 004); married people ($19 206); people who are not studying ($25 736); people who own their house ($25 552); and individuals who do not know people at the destination ($43 884) to accept jobs in the two regional locations.

The wage premium required for a person who is not looking for work to relocate is $72 148 more than for a person who is unemployed, and it is $60 760 more than for a person who is employed but looking for work.

From a policy perspective it is useful to know the total, in wage-equivalent terms, that a particular type of person is willing to forgo, or requires compensation, for accepting a specific job. This is called total willingness to pay (TWTP). A positive value for it indicates the amount individuals are willing to forgo and a negative value indicates the amount they have to be compensated. The results show that 14% of the total sample required no wage premium to accept a job.

For illustrative purposes, we calculated the average total willingness to pay for three groups for accepting jobs that are ongoing, without training and require permanent relocation to Karratha or Emerald. The three groups are:

  • young: single, unemployed or looking for work and under 30 years of age
  • old: married, employed and not looking for work, own a house and over 40 years of age
  • the rest: neither young nor old.

The results show that about 75% of the ‘young’ group is willing to accept such job offers without a wage premium. Among the ‘old’ group none is willing to accept a job offer without a wage premium.

As a number of people are willing to accept such job offers without a wage premium, it makes sense from the perspective of developing policy that seeks to use incentives to encourage labour mobility to exclude them from the calculations of the level of incentives to offer. Thus, for example, an offer of a wage premium of $3720 is likely to encourage 25% of the remainder of the young group to accept a job offer.

The main finding of the research is that there is a strong willingness to relocate for work by people who are searching for new jobs. Some people are willing to trade off wages to secure an ongoing job that includes a training component. While there is a preference for fly-in/fly-out contracts over permanent relocation to the regional locations, the net trade-off in wages is relatively small.

The unemployed is one group with a high willingness to move for work and, therefore, labour-mobility policies targeting this group have the highest potential to improve social inclusion. At the same time, programs such as Move 2 Work and Connecting People with Jobs have had only limited success. The analysis in this report suggests the reason for the limited success of these programs could be less related to the willingness to move for work and more to the labour demand-side factors, such as the skills and experience that employers need.

Policies promoting geographic labour mobility are more likely to succeed if the employment contracts include upskilling or reskilling opportunities and the job offered is not short-term. Choice experiments in which job offers are varied by demand–side factors, for example, by offering jobs with training and in non-matching occupations, could provide insights into the effectiveness of subsidising training in alternative areas. Future work may also look at the extent of the mismatch between actual labour demand and the skills of those who are the most willing to move.

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