“What Workers Lose by Staying Put,” Enrico Moretti in the Wall Street Journal

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 onemeaning 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.

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.

The September 2010 US Employment Situation: more minuses than plusses

the September report

The Bureau of Labor Statistics of the Department of Labor issued its monthly Employment Situation on Friday, October 8th.  The bottom line:  a loss of 18,000 jobs during the month, excluding the end of employment for another 77,000 temporary government census workers.  September will have been the last month where census workers will be a significant factor.  Of the peak of 564,000 temporary census employees in May, only 6,000 now remain on the  federal payroll.

The BLS also revised down the employment figures from the past two months by 15,000 jobs.

To me, the report has three important aspects:

–the service sector, the nation’s largest, continues to chug along, adding new jobs at an 80,000+ per month rate (86,000 in September),

–the goods producing sector, manufacturing and construction, has stopped hiring new employees.  The sore point seems to be non-residential construction, which shouldn’t be much of a surprise, and

–in a new development, local governments have begun to deal with budget deficits by laying off workers.  Nationally, teachers comprise 55% of the local government workforce.  They made up two-thirds of the 76,000 local government layoffs during September.

The overall picture that the September report presents is one of an economy more or less in idle from an employment perspective.  Private sector job gains are below the 100,000 level that represents absorption of new entrants into the workforce.  While Federal and state worker levels are holding steady, cities and towns are being forced to shrink their payrolls to adjust to lower levels of tax revenue being received.  It’s not clear how long this process will take.

more information from the household survey

The information above comes from what the government calls the “establishment” survey, that is, data it obtains from employers.  The BLS also does a “household” survey, which consists of interviews with employees.  The employee sample is smaller than the employer sample, so the margin of error in the former is larger than in the latter.

involuntary part-time work rising

One of the questions the BLS asks employees is whether, if they are working part-time, they are doing so voluntarily or not.  They also try to find out whether “involuntary” means their hours have been cut back by their employer or that the respondent wants full-time work but can’t find it.

The involuntary part-time worker group has jumped by 943,000 over the part two months, to 9,472,000.  Of that increase, about two-thirds of the newly part-time workers said their employers cut back their hours.

This is a potentially troubling development.  How troubling isn’t yet clear, since most of the rise comes from a seasonal adjustment of the raw data by government statisticians.  The idea is that workers who have their hours cut back during the summer normally have them restored in September.  That hasn’t happened so far this year.  At the very least, though, this is another potential weak point for the US economy.

my thoughts

Every economic recovery is marked by an initial surge in activity as consumers “catch up” on spending deferred during the bad times.  After that, the economy settles back to “normal” growth.   In the case of the US, continuing structural adjustment–hopefully municipalities will prove to be the final area to be pruning jobs–means that for now “normal” growth isn’t strong enough to add jobs.

No wonder the Fed it stalking about additional easing measures to stimulate job expansion.

Whether that will work or not is another question.  The day before the Employment Situation, BLS released August data in its series of job vacancy reports.  (See my post: FRB can’t change construction workers into manufacturing workers.)  This latest JOLT report shows that employers continue to have 3.2 million unfilled job openings, 800,000 more than a year ago, but can’t find suitable workers to fill them.