Unemployment benefits should encourage geographic mobility

An op-ed from Enrico Moretti:

Americans have always been willing to move to look for better economic opportunities, and this willingness to relocate is a big factor in U.S. prosperity. Yet while everyone is free to move to look for a better life, not everyone takes advantage of the opportunity to the same degree. Some overdue changes in unemployment insurance could improve the mobility of less-educated Americans, narrow their earning gap with better-educated workers, ease unemployment and reduce income inequality.

Today, about 40 percent of U.S. households change addresses every five years. A significant number relocate to a different city. About 33 percent of Americans reside in a state other than the one they were born in.

Geographical mobility has been decreasing over the past decade, but it is still remarkably higher in the United States than in Europe and other developed countries.Despite the history of geographical readjustment in this country, there are vast differences in the propensity to relocate. The more education a person has, the more mobile he or she is. College graduates have the most mobility, high school graduates less and dropouts the least.

This lack of mobility has large economic costs. Consider the uneven economic performance of U.S. cities. Some cities — Austin, Boston, San Francisco — are growing quickly, attracting innovative employers and adding well-paying jobs. Other cities — Detroit and Buffalo, for example — are falling behind, shedding jobs and population. As the economic fortunes of communities grow apart, the financial benefits of moving keeps increasing, but only some people exploit this opportunity.

At the peak of the Great Recession in 2009, unemployment in Detroit was 18 percent, while unemployment in Iowa City, about 500 miles west, was only 4.5 percent. The experience of an unemployed worker in the two cities was vastly different. Even in more normal times, unemployment in Detroit is typically higher than the national average and double that of fast-growing double that of fast-growing metropolitan areas like San Francisco, Seattle or Austin. But although college graduates are streaming out of Detroit, the flow of high school graduates and dropouts is much slower.

Almost half of U.S. college graduates move out of their birth states by age 30, while only 27 percent of high school graduates and 17 percent of dropouts do. This is an important factor in the increasing income inequality in the United States. College graduates make 80 percent more than high school graduates — a difference more than double what it was in 1980 — and an increasing part of this gap reflects differences in mobility.

Government policies offer little help. If you are living off unemployment checks in Flint, Mich., you do not have a lot of incentives to move to a stronger labor market, such as Chicago, to look for a job because your housing expenses would double while your check would still reflect the cost of living in Flint.

But what if jobless people in areas with above-average unemployment rates received part of their unemployment insurance in the form of a mobility voucher that would cover some of the costs of moving to another area? Instead of encouraging out-of-work residents to remain in depressed labor markets, the government could provide incentives to some to relocate to stronger markets. This would help those workers — especially unskilled ones — who want to move but lack cash to cover upfront costs. Ultimately, this could help reduce income inequality in the United States.

Some might fret that such vouchers could accelerate the exodus from shrinking communities — further depressing real estate values and hurting residents. But by increasing the number of workers willing to relocate, mobility vouchers would benefit both those who leave and end up with a better job elsewhere and those who stay and end up with a better chance of finding a job.

Such vouchers could be an additional payment beyond the current unemployment-insurance payment for those who leave areas with above-average unemployment. Or those who stay in such areas might receive lower benefits (with exceptions for people who have health conditions or family constraints). The U.S. government already provides a limited relocation allowance as part of Trade Adjustment Assistance, a federal program that helps workers who have lost their jobs as a result of foreign trade. It is time to extend the allowance to include all workers receiving unemployment insurance.

The national unemployment insurance system was introduced in the 1930s. It ought to be adjusted to reflect and correct the growing geographical disparities in the fortunes of U.S. communities.

About ozidar

I'm an Assistant Professor of Economics at the University of Chicago Booth School of Business and a Faculty Research Fellow at National Bureau of Economic Research. You can follow me on twitter @omzidar. http://faculty.chicagobooth.edu/owen.zidar/index.html
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2 Responses to Unemployment benefits should encourage geographic mobility

  1. Bob Sharak says:

    If you’re interested in the topic, I’ve found this 2001 report from the Southern Growth Policies Board to be particularly instructive. It has some age to it, as do I, but the conclusions are still valid.

    Click to access whowillstay.pdf

  2. Pingback: Unemployment benefits should encourage geographic mobility | Job Market Monitor

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