Let’s Get Americans Moving Again
 
A recent Wall Street Journal report highlighted Decatur, Illinois, where unemployment has fallen by three percentage points in the past year.  The article suggests that the rosy-sounding statistic is misleading.  Unemployment isn’t dropping because new jobs are being created in Decatur.  It’s dropping only because workers are moving away.1

But that’s precisely what needs to happen in order for the national economy to recover.  Unemployed workers must abandon the places where companies have closed their offices and factories, and relocate to the places where jobs are more plentiful.

That may be the only way to solve the paradox that we’ve been discussing for several years.  Currently, 7.8 million Americans are unemployed, according to the latest figures from the Bureau of Labor Statistics.  But according to a report from the World Economic Forum Global Agenda Council on Employment, 40 percent of U.S. employers can’t find enough talented candidates to fill their vacant jobs.2 

A study by Deloitte Consulting, cited in the new book The Smartest Places on Earth, found that American manufacturers were unable to fill 600,000 jobs, with the gap expected to grow to 2 million by 2025.3
 
All of this is happening because of a great imbalance:  Some areas have too many workers and too few jobs, while other places have the opposite problem.  This predicament is called an inefficient “spatial allocation of labor.”

Of course, it’s not quite that simple.  There’s also a mismatch between jobs and skills, due to a flawed education system.  Poverty is another obstacle, as people with low incomes lack the resources to relocate.  And housing regulations and high home prices often limit the ability of even middle-class Americans to move to the clusters where the highest-paying jobs are located.

Consider housing regulations.  A National Bureau of Economic Research working paper by Chang-Tai Hsieh and Enrico Moretti titled “Why Do Cities Matter?  Local Growth and Aggregate Growth,” revealed that even though New York, San Francisco, and San Jose produced high local economic growth between 1964 and 2009, they contributed relatively little to national economic growth.  How is this possible?4
 
Hsieh and Moretti discovered that regulatory constraints to the housing supply in those cities caused housing prices to rise, while limiting the number of people who could move to the area and find high-paying jobs there.  For example, Silicon Valley, the corridor of communities between San Francisco and San Jose that is filled with high-tech firms, has a very small population relative to the size of the land area because of land-use restrictions.

Their conclusion: “Lowering regulatory constraints in these cities to the level of the median city would expand their workforce and increase U.S. GDP by 9.5 percent.  We conclude that the aggregate gains in output and welfare from spatial reallocation of labor are likely to be substantial in the U.S., and that a major impediment to a more efficient spatial allocation of labor are housing supply constraints.  These constraints limit the number of U.S. workers who have access to the most productive of American cities.  In general equilibrium, this lowers income and welfare of all U.S. workers.”

But even if more housing were available, many Americans without jobs would still refuse to move.  It turns out that willingness to relocate is correlated with education level.  Notre Dame economist Abigail Wozniak studied U.S. Census data and found that roughly 50 percent of college graduates move from their birth states by age 30, compared to just 27 percent of high-school graduates and 17 percent of high-school dropouts.

According to a Wall Street Journal article by Moretti titled “What Workers Lose By Staying Put,” Wozniak’s findings illustrate “an important reason for the increasing inequality in income and unemployment rates between workers with college education and workers with less education.5  A college graduate today makes 75 percent more than a high-school graduate.  This salary difference is more than double what it was in 1980, and an increasing part of this difference reflects differences in mobility.  Why does a lack of education lead to lower mobility?  For some, it reflects a dearth of information about opportunities elsewhere, a shortage of the kinds of skills necessary to make a big life change and, especially, a lack of cash.  Relocating is like an investment:  You spend money up front?to cover the costs of a move and of living expenses until a job becomes available?in exchange for a better job later.  But because of limited savings and access to credit, many low-skilled unemployed workers are unable to make this investment.”

Based on this trend, we offer the following forecasts:

First, under the next Presidential administration, the U.S. will need to revamp its policies to motivate unemployed workers to relocate to the cities where they will be in demand. 

Currently, the Trade Adjustment Assistance program enables people who have lost their jobs as a result of foreign trade to collect a relocation allowance of up to 90 percent of their moving expenses as well as a stipend of $1,250.  This relocation subsidy should be available to any worker who is unemployed.  Rather than paying people to remain in places where there are no jobs, the government should pay them to move to a place where they will have a better opportunity to get back to work.  As Moretti points out, this change in policy would even benefit those who decline the opportunity to move to a city that offers more jobs: “If there are one thousand unemployed workers looking for jobs in a city and only one hundred job openings, the probability of each worker finding a job is one in ten. But if five hundred of these unemployed workers relocate, the probability that each of the remaining workers finds a job is doubled.”

Second, the federal government must prevent American cities from discouraging employment growth through excessive constraints to housing supply.

This wouldn’t necessarily require parks to be turned into office buildings.  Hsieh and Moretti found that the urban areas in Silicon Valley could be better developed without having an impact on the natural environment.  For example, office towers could replace single-story buildings.  While cities have been allowed to establish their own land-use regulations, the research shows that such regulations affect the entire U.S. economy; recall that Hsieh and Moretti calculated that the result will be a 9.5 increase in GDP.  Therefore, it will be necessary to set new standards for land use at the federal level.
 
Third, the need to increase American workers’ mobility will lead to innovative new transportation projects.

For workers who can’t afford to live near their new employers, the solution will be to build high-speed rail lines to connect communities with lower housing prices to the cities with high-paying jobs. James Pethokoukis suggested in an AEIdeas post that “a possible benefit of the high speed train currently under construction in California is to connect low-wage cities in California’s Central Valley?Sacramento, Stockton, Modesto, Fresno?to high productivity jobs in the San Francisco Bay Area.6  This could allow the labor supply to the San Francisco economy to increase overnight without changing San Francisco housing supply constraints.”

In the longer term, the Trends editors expect that driverless buses using freeway express lanes will transport employees from the exurbs to the city; shifts could be staggered at one-hour intervals so that the buses could drop off workers at 7 a.m. and then return with another shift at 8 a.m., and so on.

Fourth, the U.S. education system will need to be revamped to produce graduates who are ready to contribute to the twenty-first century economy. 

As Arthur C. Brooks recently suggested in the New York Times, “We can start by reshaping education to prepare people to move where the good jobs are found.  This entails reviving vocational and technical training in high schools.  State and local governments could experiment with trade school vouchers, or offer tax credits to businesses that support apprenticeships.  But culture will have a larger impact than policy:  We need to get over the elitist fixed idea that a bachelor’s degree is for everyone, and get serious about training people for important, interesting, dignified work that is difficult to outsource.”7

Fifth, high-paying jobs will increasingly coalesce around “brain belts,” and these jobs will attract talented people from across the U.S.

As Fred Bakker and Antoine van Agtmael detail in The Smartest Places on Earth, brain belts are “hyper-energized hubs of research and leadership that use advanced development methods and business ideas to succeed.”8  Brain belts tend to exhibit a focus on collegial collaboration, an open exchange of information, partnerships between businesses and universities, multidisciplinary initiatives, and ecosystems in which several organizations play key roles.  Examples include the high-tech cluster in Austin, Texas; the energy cluster in Houston, Texas; the aerospace cluster in Palm Bay, Florida; and the life science cluster in Boulder, Colorado.  It’s clear that innovation is rapidly consolidating around a shrinking number of regions.  A report titled “The New Map of Economic Growth and Recovery,” from the Economic Innovation Group, found that 120 counties in the U.S. produced 50 percent of new jobs from 2002 to 2006, but from 2010 to 2014 half the new jobs were created by just 73 counties.9
 
Sixth, as the Digital Techno-Economic Revolution advances, more jobs will be done remotely by skilled people who will use broadband or the cloud rather than a bus or a car to commute to the workplace.

As James Manyika, Susan Lund, Byron Auguste and Sreenivas Ramaswamy point out in their McKinsey Global Institute discussion paper titled “Help Wanted:  The Future of Work in Advanced Economies,” over the past thirty years, automation has replaced human workers in routine production work, such as assembly-line jobs, and routine transaction work, such as cashing a check.10  As they put it, “Now a third wave of change is reaching jobs that involve complex interactions and often require deep knowledge, independent judgment, and experience.   These are the jobs of the knowledge economy and include managers and salespeople, as well as professionals such as doctors, lawyers, and teachers.  For more than a decade, such interaction jobs?including both high-skill and low-skill ones?have been the fastest-growing category of employment in advanced economies.  In the United States, for example, nearly all net new job creation over the past decade has been in “interaction” jobs; nearly five million interaction jobs were created between 2000 and 2009, while more than three million production and transaction jobs disappeared.”  Manyika and his colleagues explain that, “with broadband connections, cloud computing, and other technology, many interaction jobs can be conducted ‘anytime, anywhere’?from the road, from a facility in a lower-cost city, or from an employee’s home.”  This means it will be possible for workers to have the best of both worlds:  a job for a high-paying employer, and a home in a location with lower housing costs.
 
References
1. The Wall Street Journal, May 10, 2015, “Case of the Vanishing Worker,” by Mark Peters and Ben Leubsdorf. ⓒ 2015 Dow Jones & Company Inc.  All rights reserved.

http://www.wsj.com/articles/case-of-the-vanishing-worker-1431299722

2. For access to the report “Matching Skills and Labour Market Needs,” visit the World Economic Forum website at:

https://www.weforum.org/reports/matching-skills-and-labour-market-needs-building-social-partnerships-better-skills-and-better-jobs/

3. The Smartest Places on Earth: Why Rustbelts Are the Emerging Hotspots of Global Innovation by Antoine van Agtmael and Fred Bakker is published by PublicAffairs, a member of the Perseus Books Group. ⓒ 2016 Antoine van Agtmael and Fred Bakker.  All rights reserved.

4. To access the report “Why Do Cities Matter? Local Growth and Aggregate Growth,” visit The University of Chicago website at:

http://chicagounbound.uchicago.edu/housing_law_and_policy/36/

5. The Wall Street Journal, May 26, 2012, “What Workers Lose By Staying Put,” by Enrico Moretti. ⓒ 2012 Dow Jones & Company Inc.  All rights reserved. 

http://www.wsj.com/articles/SB10001424052702303610504577420701942867414

6. AEIdeas, May 11, 2015, “We Need to Make It Easier for US Workers to Get to Where the Good Jobs Are,” by James Pethokoukis. ⓒ 2015 American Enterprise Institute.  All rights reserved. 

https://www.aei.org/publication/we-need-to-make-it-easier-for-us-workers-to-get-to-where-the-good-jobs-are/

7. New York Times, May 20, 2016, “How to Get Americans Moving Again,” by Arthur C. Brooks ⓒ 2016 The New York Times Company.  All rights reserved.

http://www.nytimes.com/2016/05/21/opinion/how-to-get-americans-moving-again.html?_r=0

8. The Smartest Places on Earth: Why Rustbelts Are the Emerging Hotspots of Global Innovation by Antoine van Agtmael and Fred Bakker is published by PublicAffairs, a member of the Perseus Books Group. ⓒ 2016 Antoine van Agtmael and Fred Bakker.  All rights reserved.

9. To access the report “The New Map of Economic Growth and Recovery,” visit the Economic Innovation Group website at:

http://eig.org/recoverymap

10. McKinsey Global Institute, March 2012, “Help Wanted: The Future of Work in Advanced Economies,” by James Manyika, Susan Lund, Byron Auguste, Sreenivas Ramaswamy. ⓒ 2012 McKinsey & Company.  All rights reserved.

http://www.mckinsey.com/global-themes/employment-and-growth/future-of-work-in-advanced-economies