The New Geography of Jobs

“What Workers Lose…” is an article in the Weekend Edition of the WSJ, adapted from Dr. Moretti’s recent book (which I haven’t read) The New Geography of Jobs.  Dr. Moretti was born and grew up in Italy, but now teaches economics at Cal Berkeley.

The thrust of the article is that Americans are unusually mobile in search of work, in contrast with Continental Europeans, who seldom stray from their birthplace.  Dr. Moretti believes that this flexibility is an economic virtue–not necessarily a surprise, given his own career.

His observation is interesting because it runs so counter to the views of prominent 20th century European literary and social critics, who look on American willingness to move as evidence that we’re rootless, soulless wanderers who have no sense of belonging.  Even worse, we eat at McDonalds, vacation at Disneyland and use disposable pens!  That’s all evidence, in their minds, that we’re an inferior brand of humanity–which, by the way, finds its highest and purest expression in the stay-at-home residents of whatever their native country is (read: themselves).

More important from a stock market point of view, the article sheds some light on the problem of the current high level of unemployment in the US.  And it offers a policy prescription for helping to alleviate it.

cyclical or structural?

The key unemployment issue, to my mind, is whether the current high level is

–a cyclical phenomenon, that is, a function of the slow economic rebound from the Great Recession, or

–a structural one, meaning that the unemployed don’t have the skills needed to qualify for jobs in today’s world.  If so, unemployment won’t just go away.

White House and Capitol Hill vs. the Fed

Politicians in Washington seem to adhere to the former view, which, conveniently for them, means that no legislative action is needed.  Time, patience and continuing low interest rates will solve the problem.  The Fed is in the latter camp (where, for what it’s worth, I am, too).  Structural unemployment requires retraining programs, plus continuing unemployment benefits until workers gain skills needed to compete successfully in the job market.

JOLT
The Fed points to the Labor Department’s Job Openings and Labor Turnover (JOLT) studies.  The latest report, from the end of March, shows the private sector has 3.7 million+ unfilled job openings.  Washington replies that workers are trapped in their home towns by houses the can’t sell because the mortgage exceeds the house value.

What does Dr. Moretti bring to the discussion?

He says:

–“willingness to relocate is a large factor in American prosperity”

–“the financial return for geographical mobility keeps increasing”

–the willingness to move is very strongly related to education level.  45% of college graduates will likely move to find better jobs before they’re 30 years old, vs. 17% of high school dropouts.  Dr. Moretti cites research by Prof. Abigail Wozniak of Notre Dame who says education explains most of the willingness to move.

Why the huge difference?

The less educated:

–have less information about the possibility of good work elsewhere

–may lack the skills needed in high-paying jobs

–don’t have the savings needed to finance the trip and support themselves while they look for a job.

Example:  the Motor City, 2009

Dr. Moretti cites the example of Detroit in 2009. Unemployment there was 18%.  Unemployment in Iowa City, 500 miles away, was 4.5%–basically meaning Iowa City firms were crying for workers of all stripes.  But high school dropouts in Detroit didn’t budge.

a policy recommendation

Dr. Moretti suggests that in high unemployment areas government unemployment benefits include vouchers that cover part of the expense of moving to find work.  This doesn’t address the lack-of-marketable-skills problem, but it does address the lack-of-cash one.  Such a program–already being implemented in a small way for workers whose firms have been hurt by foreign competition–would have two benefits.

It would help shift workers who were willing to move to places where they could find work.  And, by starting to drain the pool of unemployed in high unemployment areas, it would make the job search there somewhat easier.

two kinds of structural

All of the commentary–at least all that I’ve seen–about structural unemployment is concentrated on the long-term issue that many young men leave the US school system unequipped to compete for the best-paying jobs.  They’re prime candidates to be chronically unemployed.

Dr. Moretti’s insight is that while we can’t educate these men overnight, we can make them more mobile with the stroke of a pen.  We may also find that removing the structural rigidity of no-money/no-information does much more to relieve unemployment than we might imagine.