Brain Hubs and the Case for Labor Mobility

Over at The American, Nick Schultz has posted an interview with Enrico Moretti, an economics professor at UC Berkeley and the author of “The New Geography of Jobs“. Moretti’s thesis is that new jobs and opportunities are increasingly clustered around ‘brain hubs’ – cities with well-educated workforces and strong innovation sectors. While old industrial areas decline rapidly, these ‘brain hubs’ thrive. According to Moretti’s research, each new ‘innovation job’ brings with it five non-innovation jobs.

If this is true, then one obvious implication is that labor mobility is vitally important. People need to be able to move where the work is. As Moretti puts it:

The United States is a large and diverse nation. Economic differences across American cities (for example, unemployment rates and salary levels) are very large and keep growing. These growing differences mean that the economic returns to economic mobility have never been higher. But not all American workers are equally mobile. College graduates have the highest mobility of all, workers with a community college education are less mobile, high school graduates are even less, and high school dropouts come at the bottom of the list.

He goes on to make a crucial point:

Government policies are part of the problem. The unemployment insurance system does not provide any incentive for unemployed workers to look for jobs in places with better labor markets. If anything, it discourages mobility from high-unemployment areas to low-unemployment ones, because it does not compensate for the difference in cost of living. If you are living off an unemployment check in Flint, you do not have a lot of incentives to move to San Francisco to look for a new job, because your housing expenses would triple, but your check would still reflect the cost of living in Flint.

This is really one of the core problems with modern welfare states: they do not sit well alongside dynamic market economies, in which change is constant, and creative destruction drives progress and prosperity. Rather than encouraging people to seek out new opportunities, state welfare seeks to sustain people in their present circumstances. This may be more comfortable in the short term, but its long term implications are very worrying.

The solution Moretti hints at – redirecting welfare spending to help people move – reminds me of this excellent study, which was published by Policy Exchange, a British think-tank, several years ago. It advocated a hard-headed assessment of redevelopment policies, and an acceptance that once cities “have lost much of their raison d’etre… it is hard to imagine them prospering at their current sizes.” The policy emphasis should instead be placed on removing barriers to growth in prospering areas, and making it easier for people to relocate there. Rather than trying to buck the market, governments should get out of its way.

Yet that study also highlights the political pitfalls of such an approach. Policy Exchange, at that point a favorite of soon-to-be-British-prime-minister David Cameron, was widely condemned for wanting “shut down Sunderland” and other struggling post-industrial towns in the North of England. Politicians, predictably enough, couldn’t run away from the idea fast enough.

Likewise, it would take a very brave US policymaker to stand up and say that glory days just aren’t coming back for some rust belt towns, and that no amount of bailouts, subsidies, tariffs, or stimulus checks are going to change that sad fact. Nevertheless, the case for labor mobility – not just for highly-educated Americans, but for everyone who wants to work – is a case that deserves to be made.