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The Stickiness of Poverty: Highly-skilled Workers Exit; Poor Low-Skilled Workers Don’t

July 19, 2012

I’ve been reading The New Geography of Jobs by Enrico Moretti, which provides a good snapshot of the long-term trends in the labor market. Moretti’s research confirms that the world is in fact not flat, but spiky: talent accumulates in cities, forming positive feedback loops in which knowledge spillovers and proximity increase the productivity of everyone.  Density begets productive density and so on.

One section focuses on mobility and the willingness to move.  Here are some facts worth mulling over:

  • “Today about half of American households change addresses every five years, a number that would be unthinkable in Europe, and a significant number relocate to a different city. About 33 percent of Americans reside in a state other than the one in which they were born, up from 20 percent in 1900.” (pg. 156)
  • “Almost half of college graduates move out of their birth states by age thirty. Only 27 percent of high school graduates and 17 percent of high school dropouts do so.” (pg. 157)
  • Notre Dame economist Abigail Wozniak found that among those who entered the labor market during recessions, “a large portion of the college graduates relocated to states with stronger economies, while the majority of high school graduates and high school dropouts did not move.” (pg. 158)

It is worth speculating why unemployed, less educated people tend to stick around even as conditions deteriorate, as in Detroit. Perhaps it’s a lack of information about opportunities or online medical assistant programs. The Grapes of Wrath scared way way too many people. Or it could be that it’s simply because they do not have the resources to move. But it appears that even in areas with high per capita income among high school graduates, less educated people tend to be homebodies. (One surprising stat in Moretti’s book is that high school graduates in cities like Stamford, CT, make more on average than college graduates in Portland, OR.)

Europeans, despite their relative wealth, tend to stay put. 82 percent of Italian men between the ages of eighteen and thirty live at home with their parents. Even when they do move out, they tend to remain in the same neighborhood or even the same city block. To be sure, this stickiness has its benefits. Children become caregivers for their parents. Grandparents can help with childcare. But it also has a macro-downside. The more people stay rooted, the worse economic conditions become as unemployment increases, debt accumulates, and governance decreases in quality.

Moretti proposes “relocation vouchers” to encourage low-skilled people to move more quickly from unproductive cities to more productive economies.  This would press down the accelerator on exit over voice, a good move in general. The parallels with education come to mind, and while my biases are against subsidies, I’d be willing to support some experiments here. The key and not unreasonable assumption is that these same people will become productive in their new homes. But whether this is politically feasible is another question. After all, politicians would have to campaign on a promise to move their constituents out of their district, a very unlikely scenario given the incentives of office.

 

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7 Comments
  1. July 20, 2012 10:55 pm

    “It is worth speculating why unemployed, less educated people tend to stick around even as conditions deteriorate, as in Detroit. Perhaps it’s a lack of information about opportunities. The Grapes of Wrath scared way way too many people. Or it could be that it’s simply because they do not have the resources to move.”

    This is a question that must be answered before the concept of competitive governance can claim to serve any but the (relatively) wealthy.

  2. Abelard Lindsey permalink
    July 21, 2012 6:07 am

    Uprooting oneself and moving to create a new life involves gumption. Naturally, those with more gumption tend to be more successful than those without (after all, this is how they become successful in the first place).

    This is a question that must be answered before the concept of competitive governance can claim to serve any but the (relatively) wealthy.

    Do we need to make this claim in order to pursue our objectives? I think not.

    • Nobilis Reed (@Nobilis) permalink
      July 21, 2012 8:07 am

      And people say these issues are complicated.

  3. Jonathan permalink
    July 21, 2012 6:10 pm

    Somewhat related article that addresses labor mobility:
    http://www.bloomberg.com/news/2012-07-19/how-the-elites-built-america-s-economic-wall.html

  4. July 22, 2012 11:02 pm

    Another issue that the article fails to mention is the economics of the family unit, when more than one adult contributes (or must contribute) financially to maintain basic human needs (food, shelter, etc.) The investigation of relocation (site visits, interviews, procuring a new domicile) eats resources that are needed to feed and house the family, and the loss of one or more incomes upon relocation until the other adult(s) are able to find employment. Additionally, what a new area might improve in income opportunities for one adult in the family unit, the opportunities for the other adult(s) might be diminished, or the increase in overall family income might not cover the increase in basic living expenses in that new area.

  5. Jonathan permalink
    July 23, 2012 5:02 am

    You would think that the growth rate of an early charter/free city would be elevated. With that assumption in mind, demand for labor would be relatively high and many of the cost’s of relocating can be absorbed. Also many families (outside of specific circumstances) tend to save money prior to relocating, so that sufficient resources needed to feed and house the family are still available.

    As far as only the wealthy being the only ones who benefit within the competitive governance paradigm, they would benefit only so much as their invested capital can earn substantial returns, which require productivity which in turn requires labor to produce. That means someone’s income is either increased or now existent (in the case of unemployed now employed). I assume that early entrants would be composed of unskilled labor as the economy develops, so that class benefits from being able to get a job and earn income. By the nature of the relationship between investor and users of funds (firms and associated labor) the wealthy aren’t the only ones who benefit.

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