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A public policy blog from AEI
The unemployment rate is at a 17-year low, and the US economy continues to generate gobs of jobs, as last week’s November job report showed. Yet the US labor market could be more dynamic than it is now. For instance: Much has been written about the decline in US geographic mobility, and why that’s bad for workers. From The Economist:
Since 1990, the percentage of Americans moving from one state to another in a given year has fallen by about half. Americans rely on the natural flexibility of their labour market to do a lot of the shock-cushioning work that falls to strong safety nets or other labour-market interventions in other countries. If Americans begin to move at European rates, demands for European-style labour-market rules may rise.
In particular, we might want Americans more readily moving from places of low economic opportunity to higher economic opportunity. And that also doesn’t seem to be happening. From “Stuck! The Law and Economics of Residential Stagnation” by David Schleicher: “Americans, especially those who are non-college educated, are choosing to stay in areas hit by negative economic shocks. There is a long history of localized shocks generating interstate mobility in the United States.”
Among the barriers to mobility cited by Schleicher are land-use laws and occupational licensing regimes, problems which suggest their own remedies. A complementary policy approach would be government mobility or relocation assistance. Here is my AEI colleague Michael Strain in National Affairs back in 2014:
Second, we should provide relocation subsidies to the long-term unemployed to finance a good chunk of the costs of moving to a different part of the country with a better labor market. These subsidies should cover a solid majority of reasonable and necessary moving expenses. We may also want to make up the difference with a low-interest loan, with a repayment scheme capped at a small percentage of annual earnings subsequent to their starting a job. Moving is a major investment that requires a fair amount of up-front cash. Many of the long-term unemployed just don’t have the money and don’t have much access to credit.
And along similar lines are policy suggestions from a new-ish IZA Institute of Labor Economics paper that used survey data on German unemployed job seekers to analyse the impact of “mobility assistance programs,” or MAPs, including subsidies for travel costs to distant job interviews or relocation costs. From the paper (thanks to Greg Ferenstein for the pointer):
Our estimation results confirm the theoretical prediction that job seekers intensify their search effort with respect to distant job vacancies if they have access to MAPs. We further show that this increase in search effort for distant jobs results in an equal reduction in search effort for local jobs. This means that job seekers do not increase their overall search effort but rather shift resources from local to distant job search in response to the MAP.
The increase in search radius results in higher employment rates, higher wages and a reduction of subsidised self-employment. The latter suggests that access to the programmes apparently reduces the dependence on other forms of governmental support, in this case start-up subsidies.
This is a promising finding especially in the light of the relative low costs per participant for MAPs. Furthermore, we show that the increased search radius causally leads to higher geographical mobility among job seekers (in terms of both relocation and commuting), which in turn explains the positive employment and earnings effects for distant job seekers.
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