Housing Market Not to Blame for Keeping Unemployed Out of Work

Unemployment in the aftermath of the Great Recession is not a structural problem, it's a demand problem.

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Heidi Shierholz is an economist at the Economic Policy Institute and a regular contributor to its blog, Working Economics.

While the unemployment rate has seen improvements in recent months, it is still well above 8 percent and is not expected to get below 7 percent until the end of 2015. It is important to note that the national unemployment rate masks a huge amount of variation in unemployment by geographic area. For example, in 2011 the unemployment rate in North Dakota was 3.5 percent, whereas in Nevada it was 13.5 percent. Some claim that today's persistent high unemployment is due in significant part to geographic immobility—in particular that because the bursting of the housing bubble has left many homeowners underwater on their mortgages, workers are more tied to their homes than in prior downturns, and in the event of job loss are less able to move to places where there are jobs. Could "housing lock" account for a significant portion of the high unemployment in the aftermath of the Great Recession?

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A straightforward way to investigate that possibility is to see whether it would be feasible for a significant portion of today's unemployed to move and be readily absorbed elsewhere. In 2007, there were 3,218 counties in the United States, and 2,517 of them had an unemployment rate of less than 6 percent. Between 2007 and 2011, all but 34 counties in the United States saw an increase in their unemployment rate. By 2011, only 589 counties in the United States had an unemployment rate of less than 6 percent. And of these, only 538 had an unemployment rate in 2011 that was less than twice as high as it was in 2007. While having an unemployment rate that is less than 6 percent and that has not doubled in the last four years is a rather generous definition of labor market health, these 538 counties are nevertheless the set of counties that could plausibly absorb unemployed workers from the outside. But not only are there few of them, they are also relatively rural—three-quarters of them are in Nebraska, Kansas, South Dakota, Iowa, North Dakota, Oklahoma, Minnesota, and Montana.  In 2011, these 538 counties accounted for just 5.8 percent of the country's jobs. For these counties to absorb the extra unemployed workers from the other counties to get their unemployment rates down to their prerecession levels, the number of jobs in the "receiving" counties would have to grow by 85 percent. By comparison, over the last year, employment in these potential "receiving" countries grew by just 1.1 percent. The failure to relocate cannot be a key part of high unemployment unless there are places where a significant portion of unemployed workers could go and be readily absorbed, which, as this analysis shows, there are not.

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The finding that a "geographical mismatch" is not a key driver of unemployment today is consistent with other findings that a mismatch between workers and job openings is simply not the predominant problem in the labor market problem (in particular, this post and this post show that today's unemployment is not being driven by a "skills" mismatch). Unemployment in the aftermath of the Great Recession is not a structural problem, it's a demand problem. What we have in today's labor market is a shortfall in demand for workers that exists across occupations, industries, education categories, and all across the country.

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