The Great Reshuffle: Residential Sorting during the COVID-19 Pandemic and Its Welfare Implications

Using individual-level micro data of location histories, we document a sudden rise of net migration towards suburban neighborhoods and smaller cities in the U.S. during the COVID-19 pandemic. We demonstrate that such migration wave was driven disproportionately by the movement of the high-income population, and, thus, it has ``undone'' some of the spatial sorting observed over the decades before the pandemic. As a result of the migration, housing costs rose in the locations receiving the migration influx but declined in the areas experiencing the exodus. Demand for local services and, consequently, local service jobs moved in the same direction as the migration. Using a simple spatial model and an instrumental variable approach, we show that the pandemic-era migration tempered the robust gains in job access from the adoption of WFH. Moreover, the migration alleviated the housing cost burden faced by both high- and low-income people, but more for low-income people. On the net, the spatial sorting during the first two years of the pandemic reduced the welfare inequality. However, the gains are small in magnitude relative to the worsening of inequality stemming from the differential WFH availability by worker income.