Staying When the Going Gets Tough: The Equivalent Predictions of Option and Search Theory on Migration during Economic Downturns

We show that both option and search theory suggest that workers should be less likely to migrate out of labor markets in which there is greater uncertainty about future economic opportunities. The intuition for this result is that, the more volatile the labor market, the greater the likelihood of such opportunities improving in the future. This result weakens the standard prediction that workers should migrate out of markets experiencing relative economic downturns.