Great Recession Geography: Unemployed Migration

I figure most people underestimate the dear costs of geographic immobility. Hence the obsession with impeding outmigration. Perhaps some data will change a few minds:

According to the 2010 Corporate Relocation Survey conducted by Evansville, Ind.-based Atlas World Group, 56 percent of companies saw employees decline an opportunity to relocate in the past year, with a third of companies saying the number of employees who declined a transfer increased over the previous year. Of those who declined transfers, most cited housing or mortgage concerns as their primary reason, the first time any reason besides “family ties” was cited since Atlas began asking the question in 1983.

According to California-based CoreLogic, 23 percent of all residential properties with mortgages were underwater at the end of June. In the Nashville area, 11.4 percent of mortgaged residential properties are underwater.

The Federal Reserve Bank of New York studied the relationship between the housing bust and mobility in 2008, finding that negative equity decreases mobility by up to 50 percent. Restricted mobility also has broader impacts on the economy, as it keeps labor markets and employers out of sync.

“Theoretically, it causes unemployment to be higher than it ought to be,” Penn said, as potential employees are hamstrung in their search radius.

Penn said the mobility crunch is “more of a problem now than it was in the last couple of recessions,” thanks to the national emphasis on homeownership. According to the U.S. Census Bureau, homeownership increased by 8 percent between 2000 and 2007.

You can find the Federal Reserve Bank study here. Reading through it reminds me of the costs of geographic mobility, namely the erosion of social capital. Usually, the press and politicians lament the loss of human capital. That's more or less a bogus consideration, a red herring. Excess skilled labor is not necessarily a desirable outcome. Few regions (if any) in the United States are struggling under an acute talent shortage. As for Rust Belt cities, most suffer from too much social capital.

Global cities are not on the verge of community collapse because so few natives remain and so many newcomers arrive each year. By dispensing with all the brain drain talk, I doubt we are in any danger of going too far in the other direction. If anything, the threat is labor market protectionism. The aim of talent retention is a hallmark of intolerance and parochialism, not to mention geographic fetishism.

Increasing geographic mobility enhances economic development. It is also an investment in human capital. Richard Florida once linked to a Financial Times piece that explains our preference for a kind of apartheid:

Looking to the US, one might ask why people still live in Detroit, which has suffered for so long? Why not move to Chicago or New York? People originally moved to places such as Treorchy because there was coal to be mined. Now that the mines have closed - and the Burberry factory, too - why do they stay?

One reason is that community ties matter. Many people like to stay near where they were born. But many others would like to seek new opportunities - even, dare I say it, new experiences. My father moved the family to four different locations across England in pursuit of work. I’ve also moved several times to find the right job, and only occasionally regretted it.

But emotional ties are not the only ones that bind us. There are Byzantine restrictions on cross-border migration. Philippe Legrain, author of Immigrants: Your Country Needs Them, argues that freer migration would promote creative, economically robust cities. He is right. Even when we look only at internal migration, the barriers are formidable. The British are a nation of home owners, apparently happy to pay far more for the privilege of owning their own house than they would ever pay to rent one. Other nations, happier to rent, see unemployment reduced as a result.

The economist Andrew Oswald has shown that across European countries, and across US states, high levels of home ownership are correlated with high levels of unemployment. More conventional factors such as generous welfare benefits or high levels of trade unionisation don’t explain unemployment nearly as well as the tendency to own houses.

Recent research in the Economic Journal by Jakob Munch and colleagues suggests that people who own their own homes do find jobs as quickly as those who are free to move, but do so partly by being less picky about which job to take, and by commuting further. So Professor Oswald is right to argue that we should do everything possible to remove impediments to renting or to selling a house and buying a new one. It would be handy if we were allowed to build houses near London, too.

Even if we did all this, the US economists Ed Glaeser and Joe Gyourko argue that one serious barrier remains: houses do not walk. No matter how bad things get in Detroit or Treorchy, the houses will still be there, and if they are cheap enough people will want to live in them. The likely result is a gloomy sort of segregation: those who feel that they can find a good job in the big cities will move there and pay the higher rents. Those who are less confident of that would rather have no job in a cheap house than no job in an expensive house. Detroit will have residents for a long time to come.

The Mobile and The Stuck. Each talent retention initiative reinforces this dichotomy, the chronic impoverishment of the lower classes. This mindset informs xenophobia and closed borders, the exclusion of immigrants. It fuels greater gender inequity and oppresses women. It isolates various racial and ethnic groups in neighborhoods of poverty. Perhaps well intended, attempts to impede geographic mobility are wrong at every scale.