Some people like a fine wine or a top-rated meal. This blog likes a good study looking at potential deteriorations in the job matching function. Instead of “foodie”, call us “structies.”
This blog summarized a bunch of the research surrounding “housing lock” and a lack of mobility as a result of the housing crash back here. The short answer is that states that saw the biggest declines in housing didn’t seem to be impacted at all in mobility, and the worst hit states might have even increased mobility. Many studies found that people simply just rented out there homes and moved on to new places. I found the evidence convincing and would note the lack of counter-evidence, or a literature saying that housing lock was in fact a major issue while dealing with these arguments.
Mark Thoma points us to the following summary of exciting new research, written by Kash Mansori, of recent work by Colleen Donovan of Freddie Mac and Calvin Schnure of the National Association of Real Estate Investment Trusts:
The evidence presented in this paper indicates that the fall in house prices has indeed caused a “lock-in” effect, but has not significantly impacted labor market efficiency. Here’s the abstract:
The collapse of the housing boom led to an unprecedented number of homeowners who are “underwater”, that is, owe more on their mortgage than their homes are worth. These homeowners cannot move without incurring significant losses on their homes, possibly causing a “lock-in” effect reducing geographic mobility. This raises concerns that a reduction in labor market mobility may hamper the ability to move to accept employment in another geographic market, degrading labor market efficiency and contributing to higher structural unemployment.
This paper examines housing market turnover and finds significant evidence of a lock-in effect. The lock-in, however, results almost entirely from a decline in within-county moves. As local moves are generally within the same geographic job market, this decline is not likely to affect labor market matching. In contrast, moves out-of-state, which are more likely to be in response to new employment opportunities, show no decline, and in fact are higher in counties with greater house price declines. Housing market lock-in does not appear to have degraded the efficiency of the labor market and does not appear to have contributed to a higher unemployment rate.
This is a significant piece of evidence against the “structural unemployment” explanation for the US’s high and persistent unemployment rate. Yes, labor market inefficiencies do certainly exist, and there are a variety of reasons why economies don’t always perfectly match unemployed people with available jobs. But the underwater mortgage “lock-in” phenomenon that has been cited as the primary reason why the US’s labor market suddenly got so much worse starting in 2008 simply does not match the evidence.
Seeing Like State Econometricians
There’s a generic stereotype that socialists/progressives/liberals/left look to what the State sees in terms of trying to figure out what to do, while conservatives/libertarians/neoliberals/right would look to market prices instead. Their argument is that market prices can quickly collect the dispersed wisdom of many different agents, while the State can only “see” where it is capable of observing, and it ultimately homogenizes, flattens and remakes the deep knowledge wherever it ends up looking.
But notice what has happened in the debate about structural unemployment. The two major pieces of evidence that those who have argued we’ve hit a structural edge, usually conservatives, libertarians and some neoliberals, are (a) an increase in job openings, as calculated by the Bureau of Labor Statistics’ JOLTS data and (b) a decrease in interstate mobility, as calculated by the US Census’ CPS data.
And notice what has happened in the past 6 months or so. The Minnesota Fed found that those interstate mobility numbers were the result of a hot deck data imputation problem and the drop didn’t actually happen. And as we’ve flagged, much of the increase in the JOLTS job openings rate was the result of government agents having “seen” a pre-recession calibration of its birth/death model for new businesses and then re-looking post recession. (And that’s not even getting into whether or not a firm-side vacancy search intensity is a consistent value right now, something the government doesn’t record because it can’t see it easily.) Both results were greatly exaggerated.
That’s not to beat up on government agencies – measuring these things is very important but difficult in the largest recession since the Great Depression – but it is important to understand the limits of what we can know from these studies.
Meanwhile, if you look at market information like the price of 10-year bonds or inflation risk, you’ll see that the market thinks we are more than capable of doing more stimulus and emphasizing unemployment. Funny how only team socialist/progressive/liberal are the ones willing to believe market information in this debate.