Is the answer to unemployment nothing more than a U-Haul?
This question has been popping up a lot lately. The idea is that working-class towns and communities are dysfunctional and dying, and there's nothing for residents to do but move to greener pastures. Nor has it just been right-wingers making this argument. Adherents include economist Tyler Cowen, Bloomberg's Justin Fox, and even a few liberals like Mother Jones' Kevin Drum.
More broadly, reform-minded conservatives worry about the long decline in Americans moving to find work, and suggest solutions like relocation vouchers (basically, cash grants to families to help them move).
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But let's back up for a moment and examine the implicit assumption here. No economy is a perfectly flat plane when it comes to the distribution of jobs. In America, as with anywhere else, there are peaks and valleys: More jobs in major cities and industrial hubs than in rural states and small towns, for instance. But it's always been that way, and probably always will be. This debate assumes something new has happened: that the geographic disparities in opportunity have become so bad that Americans in some places have no choice but to just get the hell out.
Is that right? Marshall Steinbaum, a research economist at the Center for Equitable Growth, took The Week through some recent studies that suggest the answer is almost certainly "no."
The first paper was by a group of researchers associated with the New York Federal Reserve, and it looked at something called the tightness ratio: job vacancies over unemployment in a given area. The more the ratio varies between geographic areas, the more "geographic mismatch" there is — i.e. lots of job openings in some places, but not in the same places where there are lots of unemployed workers.
What they found was that, over different geographic areas of the country, there's basically no variation at all. Sure, a vibrant city might have more jobs than a sleepy small town, but that's to be expected since the volume of workers is so different. But the competition for jobs was more or less equally fierce in both places. This implies a job seeker isn't going to improve his or her chances by moving from the small town to the city.
The author of the second paper — University of California, Berkeley economist Jesse Rothstein — supplemented this finding by doing something even more fundamental: He looked for evidence of upward pressure on wages throughout the economy. If some areas have lots of job openings but not enough workers and other areas suffer from the reverse problem, then we should see rising wages in the first area. "But you don't see those wage increases," Steinbaum said. In fact, Rothstein found no evidence of serious upwards wage pressure anywhere.
That economic problems are basically the same everywhere points to a different conclusion: The American economy just isn't generating enough jobs overall. As Steinbaum explained, this is because aggregate demand at the national level — the ability of consumers to buy goods and services and thus incentivize businesses to hire more — is just too low. Rothstein agrees with this interpretation in his paper.
There's also a political component here. Boosting aggregate demand requires policies often associated with the left, like loose monetary policy and deficit spending on welfare or infrastructure. Conservatives and even plenty of centrists tend to oppose these things on policy grounds, arguing that the problem is something "structural" or "supply side" like insufficient worker mobility. But this is just smoke and mirrors, Steinbaum says. "These geographic stories about the workers are in one place and the jobs are someplace else are designed to defeat the argument that the labor market's problems are caused by insufficient aggregate demand."
It's also worth mentioning that both the New York Fed paper and the Rothstein paper didn't just look at this in terms of geography; they looked at tightness ratios and wage pressure across different industries, occupations, and sectors. In other words, they also looked at whether workers should move into different job categories that require different skills, as opposed to just moving to different places. The New York Fed paper found that mismatch between sectors, explained, at most, a third of the problem. Rothstein found no real evidence of differences in wage pressure at all. That doesn't just challenge the idea that workers need to move to new places to fix the country's employment problem; it also challenges the idea that workers need to acquire new skills.
And while these two papers combined only cover changes in the economy back to 2000, there's plenty of other evidence that the chronic lack of aggregate demand in the economy goes back at least to the 1980s.
None of this means that conservative ideas like relocation vouchers, job retraining, and other proposals are bad. They just don't address the crux of the problem, the economy's chronic lack of aggregate demand. Instead, they only ameliorate its consequences.
Sorry, U-Haul.
