There’s no place like home — and the labour market needs to adjust

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Conventional economic thinking tells us that people go where the jobs are. In America, there is a long history of westward expansion in search of opportunity. In the UK, Margaret Thatcher’s employment secretary, Norman Tebbit, was fond of telling people about his father who, when unemployed, “got on his bike and looked for work, and he kept looking till he found it.” Clearly, it is easier to find work when you are mobile. But what happens when people can’t or won’t move to where the jobs are?

It is a question that American policymakers are focusing on in the wake of pandemic related job destruction. Covid-19 hit different groups of people in very different ways, with virtual knowledge workers doing far better than those in professions that require face-to-face contact. Statistics pointing to declining income inequality during the pandemic are misleading, say some academics, because they reflect short-term government policy responses, such as handing out stimulus cheques. Longer term, it’s quite clear that the nature of work is going to shift radically, with the possibility of many more jobs being done anywhere — be it Bangalore or Bangor.

This may open up a new globalisation of white collar labour markets, which could benefit workers in emerging markets that are moving ahead digitally, but could also put pressure on labour in richer countries. On the other hand, American workers unable to afford housing, childcare and schooling in expensive coastal cities could move to one of the less expensive “zoomtowns” that have grown during the pandemic.

It is impossible to know yet how this arbitrage for jobs, place and labour will play out. But what we do know is that place matters a lot more in terms of labour markets than we once thought it did. Economists have traditionally thought in terms of people, not geography. But a more location based approach to job creation is gaining steam. Research shows that communities adapt very differently to economic downturns so a variety of bespoke approaches are needed — rather than just policies designed to create job growth at a national level — to cope.

Harvard and Berkeley economists have, for example, shown that intergenerational mobility varies quite substantially across the US. A 2014 study showed the probability that a child born in the 1980s reaching the top quintile of national income distribution, when starting from a family in the bottom quintile, was 4.4 per cent in Charlotte, North Carolina (not a backwater, but a thriving Southern services hub). By contrast the chance of the same group from San Jose, California, was 12.9 per cent. Higher mobility areas like San Jose had some combination of less residential segregation, less income inequality and better primary schools. They also had greater social capital and family stability.

The point about social capital matters tremendously. Think of the book Hillbilly Elegy, when workers without college degrees lose their jobs, they tend not to move, but to cling to what little social capital exists in their home or community. Facts back up this narrative. As “China Shock” authors, economists David H Autor, David Dorn, and Gordon H Hanson have found, the classic economic assumptions about labour market adjustment in response to trade and tech related job displacement have not held true in recent decades. “For reasons economists still don’t understand,” wrote Hanson in Foreign Affairs recently, workers with less education rarely “choose to move elsewhere, even when local market conditions are poor”.

The result is localised recessions, and the dangerous politics that comes with them. What to do about this? For starters, Hanson and many experts advocate for greater buffering of workers in areas undergoing particularly dramatic changes, via trade assistance. But there again, solutions should be local, rather than one-size-fits-all. Some people might need money to pay bills, while others want retraining or help with new job searches. All of this should be done in conjunction with private sector assistance. When the pandemic hit, European governments did a better job keeping people in work because they worked with the private sector on short-term work schemes and wage subsidies. American companies just laid people off, and left them to fend for themselves.

This raises the point that any government subsidies or local city and regional incentives need to be designed for the benefit of both business and labour. The typical corporate subsidies given to lure employers to beleaguered cities tend to erode the tax base and not help troubled regions longer term. This is something for the Biden administration to think carefully about as it revisits Trump era “Opportunity Zone” tax breaks.

Ultimately, better education is the best buffer for labour. I’d love to see a high-tech version of the secondary school vocational programmes that liberals unwisely threw away in the 1970s over worries that poor kids would end up as welders and richer ones, say, opinion columnists (on this, I would just note that my plumber in Brooklyn makes more than I do at the FT). We need both liberal education and workplace learning, and there are models today that blend both — like the P-Tech programme, which has scaled nationally and international.

Even in a globalised world, place matters. We need to create jobs. But we also need to bring them to where people are.