Last year, nearly 5.5 million Americans moved from one state to another. The need to escape overly burdensome governments may be at least part of the reason why.
North American Moving Services recently released a report detailing state-to-state moves during 2017. Using Census data, the moving company clearly showed which states experienced net outflows of residents last year and which states experienced net inflows. The top ten inbound states were Arizona, Idaho, North Carolina, South Carolina, Tennessee, Florida, Oregon, Georgia, Colorado, and Texas.
The top ten outbound states were Illinois, Connecticut, New Jersey, California, Michigan, Pennsylvania, Minnesota, New York, Maryland, and Washington.
The moving company doesn’t need to know why people move — it just needs to understand where they move in order to run its business efficiently. What is interesting to us, as empirical researchers, is why people move. Using data from the Fraser Institute’s annual "Economic Freedom of North America" report, we find that people prefer to move to states with lower taxes, more reasonable levels of government spending, and friendlier labor markets.
There are numerous reasons why people choose to move, but it is undeniable that economic considerations play a major role. According to our calculations, the top ten inbound states had an average rank of 14.1 out of 50 on the EFNA index (that is they had on average the 14th highest level of economic freedom). How did the top ten outbound states fare? They had an average rank of 32.0 — more than double.
Let’s look just at the top outbound state, Illinois, and the top inbound state, Arizona. Moving companies can charge higher prices to people moving into popular areas than to people moving into unpopular areas. To keep a sufficient number of trucks available in the two types of areas, they must charge different prices for those areas. Using U-Haul’s online estimate tool, we find that it is 50 percent more expensive to rent a 15-foot truck to move from Chicago to Phoenix (the largest city in each state) than it is to make the reverse move.
Arizona ranks ninth on the state economic freedom index. Illinois ranks 35th. A similar metro area-level index ranked Phoenix 12th most free among the 50 largest metros, while Chicago was 34th. Income and payroll taxes in Arizona account for 1.8 percent of personal income. They were nearly twice as high in Illinois (3.5 percent). Property taxes and other tax revenues account for 3 percent of personal income in Arizona, as compared to 4.6 percent in Illinois.
Arizona is a right to work state, with only 6.1 percent of its employees in unions. In Illinois, companies can mandate union participation as a condition of employment. Consequently, 16 percent of the Illinois workforce is unionized. Insurance and retirement payments account for nearly 4 percent of personal income in Illinois, compared to less than 2 percent in Arizona.
To be sure, most people don’t consult the Economic Freedom of North America index before deciding where to move. Still, they do look at things like how their tax treatment will change and whether they will be forced to join a union. Most of all, they move to where the open job positions are. A state can get away with a few bad policies if the bulk of what it does is economically beneficial to its citizens.
Unfortunately, states like Illinois have reached a tipping point, in which uncompetitive policies are beginning to persuade more people to leave than are willing to come back in and take their place. Indeed, Illinois’ population declined by nearly 34,000 in 2017, by far the largest decline in the country. That mass exodus dropped Illinois to the sixth largest state, in terms of population, as Pennsylvania moved past it into fifth.
As transportation becomes ever easier, and as technology allows more work to be completed virtually, people are able to be choosier about where they live. If states like Arizona maintain their atmosphere of economic freedom, they will be handsomely rewarded with an increasing number of new residents. If states like Illinois don’t improve, they are at risk of spiraling downward indefinitely.
Meg Tuszynski is the assistant director and research assistant professor at the O’Neil Center for Global Markets and Freedom at Southern Methodist University. Dean Stansel is a research associate professor at the O’Neil Center and is the primary author of the Fraser Institute’s annual Economic Freedom of North America report.
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