By Fester:
Dave Schuler at the Glittering Eye raises an interesting question regarding unemployment policy --- should benefits be extended or should people start moving to where there is below national average unemployment? HIs implied argument is a convergence argument, a free and mobile labor market should smooth out differences in local unemployment and this will provide both an individually and socially preferred outcome than extended unemployment payments.
I think in a smooth, no-transition and transaction cost world, I would agree with him. However we do not live in that world and the differences are important. Let us divide the population of people who are out of work into two groups. The first group are those with minimal attachments and fixed costs. A friend I recently ran into is an excellent example. She had just completed law school and sat for the bar last week. Her lease is up in Pittsburgh and she has some legal piece work that requires a good internet connection and a laptop. It ill pay her enough to subsist on until the student loan deferment is over. She currently has no full-time offers. She is thinking about moving down to Florida, Seattle, San Fran or a couple of other cities where she has friends' couches to crash on until she could find full time work.
The other population of people looking for work have high mobility costs. For instance they may have bought a house and are breaking even once sales transaction costs are accounted for in the better case; more likely they are underwater. They have significant family and social networks in the area as well. Moving is expensive, especially if that move leads to a job with significantly lower wages than the jobs that the individual's domain specific skills would have led them to.
The first group of individuals are the most mobile. They are Richard Florida's dream as they are the marginal additions to a regional labor force. However they are fairly small in the population of pople who are eligible for unemployment insurance. Instead the dominant groupof unemployment benefit eligibile people are the individuals with high costs of mobilitiy. A move likely entails taking a loss on their house in either a short-sale or short-rental for if there is equity available, it likely was tapped to cover the costs of unemployment. A small movement subsidy will not change the calculations of members of this second group, while it would be a windfall subsidy for members of thse first group.
This argument holds its strength if one assumes there will benet job growth that is widely distributed over the next few years. It is much weaker for Detroit where the operating assumption is a massive sectoral shift of employmnet mixtures and levels and where people will be leaving and taking losses to leave anyways.
"should benefits be extended or should people start moving to where there is below national average unemployment?"
ReplyDeleteDuring the 80's, one of Thatcher's cabinet - Norman Tebbitt, infamously illustrated the rich conservative's empathic distance from the reality of mobility for poor people. He suggested that the unemployed "get on your bikes".
Regards, Steve
I can�t argue with your point on the ease of mobility for some people over others, though your housing examples smacks slightly of sunk cost fallacy. I may just be reading it wrong.
ReplyDeleteDave�s argument fails on a more simple level. Simply moving people to other areas doesn�t magically create new jobs. Shift a hundred thousand unemployed people from an area of high unemployment to an area of low unemployment and all you�ve done is cause a shift in their unemployment numbers, unless there are expanding industries in the area that can soak up some of the qualified unemployed from other areas. Can you think of many regions right now where that would be true?
As the first commenter at Dave�s site noted, the areas with low unemployment are also low in population, which argues against their being on the brink of some boom that just requires a massive influx of labour to get going. In fact, if my experience is any guide, their low unemployment is more likely due to many folks taking your friend�s route of moving to larger centers where the possibility of more specialized employment is far better than in limited population backwaters, even if the overall unemployment rate is higher and a lot of others simply not looking for work any longer since they know very well there is none available in the region. (After all, most unemployment numbers don�t include people not actively looking for work, or who have already been kicked off the unemployment roles.)
One other point. In cases where there is a booming industry looking for labour, they usually boost their wages and benefits to try and attract labour to move to the area. Alberta's tar sands are a good example of such a phenomena. They also illustrate the downside, which is that such surpluses of disposable income for the employed in the region causes considerable inflationary pressure on the cost of living, which means that if you move there and don't find work, you'll probably wind up in far worse shape than if you had stayed unemployed at home.