Migration, labour demand, housing markets and the drought in regional Australia

Research Paper No. 49 – September 2011

Executive summary

The most recent drought has been one of the most severe on record, with large parts of southern and eastern Australia experiencing dry conditions since 1996. Moreover, "for the agriculturally important Murray-Darling Basin, October 2007 marked the sixth anniversary of lower than average rainfall totals, with the November 2001 to October 2007 period being its equal driest such six-year period on record" (Bureau of Meteorology [BOM], 2007, p. 1). Households adjust to adverse circumstances in drought-affected areas, with some members of households moving (temporarily or otherwise) towards areas with greater economic opportunity. One implication of drought is that it can fundamentally change the long-term economic viability of regional areas.

This report exploits the geographically uneven nature of the drought to explore the interactions between local labour demand and short-term and long-term mobility or, more correctly, migration. Given that the definition of drought is contested, sensitivity analysis was conducted using independent regional data. Census data for Statistical Local Areas (SLAs) throughout Australia were used to capture mobility between 2001 and 2006. The major social and economic costs and benefits of migration identified in recent censuses are used to explain the changing patterns of mobility within and between rural and metropolitan areas. These results are interpreted by reference to the standard human capital model of migration.

There are strong incentives for people to leave drought areas if adverse conditions persist in the long run; however, there is no necessary reason why this effect would be apparent in the short run. The main finding of this report is that it is important to differentiate the processes of migration so that policy-makers understand the factors that affect moving into and out of areas. While the interactions between drought and migration in drought are more complex than some analysts have argued, policy-makers still need to take them into account in regional economic plans and demographic projections. The research community also needs to take into account the role of selective migration in altering estimated models of individual behaviour in the social and economic domains.

This report also examines any issues arising from the use of the measures from the publicly released confidentialised unit record file (CURF) of the Rural and Regional Family Survey (RRFS) being conducted by the Australian Institute of Family Studies (AIFS). Most of the regional data used in this report can be linked to the CURF. Some of the data used are rather experimental in nature or have some unresolved quality issues at the SLA level of aggregation, and hence should be excluded from the publicly released data. One example is the measure of the contribution of the agricultural sector to structural change. The main issue for that variable is that it is rather difficult to interpret, and further refinements may be required to the estimator to ensure that it is providing meaningful information about drought-affected areas. Unfortunately, the second category of information that cannot be included is gross flows of various populations, which are rather difficult to make precise statements about at the SLA level. Notwithstanding this, other regional characteristics can be included at the discretion of AIFS. Note that any CURF should include the basic SLA measures of out-migration, in-migration and net migration.

The "good news" from this report is that the net effect of drought on migration is small or insignificant in the short run. While analysts need to be mindful of the possible changes in the composition of the population in drought-affected areas, their research needs only to be suitably qualified. That is, most analysis of the effect of drought from the RRFS is likely to be reasonably robust to the failure to take into account migration. Notwithstanding any documentation released with a CURF of the RRFS should alert readers to the fact that the regional characteristics of SLAs may change as a result of drought and hence ask potential analysts to have suitably cautious and nuanced analyses of the effect of drought on various social and economic outcomes.

Perhaps the most important effect of drought is on the increased stress it places on families who are adjusting to financial pressures generated by regional decline. The long-term fragmentation of families who send some of their number elsewhere to find work is unlikely to be sustainable in the long run, as families will grow apart to adjust to the new "permanent" reality. Of course, one cannot presume anything is permanent when it comes to the weather, and hence the effect of drought is intrinsically indeterminate and uncertain.