03.24.09

The End of American Labor Mobility

Posted in All Categories at 8:06 pm by Michael Goode

See this great article at The Economist.

Excerpts:

“A decade ago Andrew Oswald of the University of Warwick in Britain argued that excessive home-ownership kills jobs. He observed that, in Europe, nations with high rates of home-ownership, such as Spain, had much higher unemployment rates than those where more people rented, such as Switzerland. He found this effect was stronger than tax rates or employment law.”

“House prices have collapsed by 27% since their peak in 2006. By December last year a fifth of homeowners with mortgages owed more than their homes were worth. Such people are only half as likely to move as those whose homes are above water, estimate Joseph Gyourko and Fernando Ferreira of the Wharton School of business.”

The housing downturn has locked a lot of people into their present location because they are underwater on their mortgages and can’t or won’t sell for such a loss. One of the unsung problems that this creates is it reduces labor mobility. A vibrant economy will always be destroying some jobs and creating others. Rarely are they in the same location. If people cannot easily move across country to jobs that suit them and best utilize their skills, the economy as a whole will suffer because people’s skills and training will be wasted.

One great example of this is the pharmaceutical and biotech industry. Companies like Genentech (DNA), Gilead (GILD), and Amgen (AMGN) are growing rapidly while Merck (MRK), Schering-Plough (SGP), and Wyeth (WYE) are now or soon will be cutting lots of jobs. The problem is that the growing biotech companies are primarily on the west coast in California, while the sclerotic pharmaceutical companies are on the east coast in Massachusetts and New Jersey. Laid-off scientists in Massachussets who cannot sell their houses will be unable to move to where the jobs are.

Disclosure: No positions.

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