The U.S. labor market remains strong despite the Federal Reserve's efforts to slow the economy to bring down inflation. The national unemployment rate is near historic lows at 3.8% and there are still more job openings than unemployed persons. In some metropolitan (metro) areas, unemployment rates are below 2%. Yet despite the extremely tight labor markets in some places, people are not moving to take jobs. In fact, a new study finds that workers with less education tend to avoid metro areas with more dynamic labor markets.
Migration within the United States has been slowing for decades, as shown in the figure below. In the early 1980s, nearly one in five Americans moved each year. In 2022, less than one in ten did.
The Brookings Institution https://www.brookings.edu/articles/americans-local-migration-reached-a-historic-low-in-2022-but-long-distance-moves-picked-up/
Low internal migration may not seem like a big deal when the national labor market is strong: With an unemployment rate of 3.8%, help wanted signs are likely up in every city. But the strong national numbers hide some local variation.
Take California. The state unemployment rate is 4.6%, which is the second highest among the 50 states. Within the state, metro area unemployment rates vary from 3.3% in coastal San Louis Obispo to over 8% in more inland metro areas such as Bakersfield and Merced. An 8% unemployment rate means a lot of people in Bakersfield are looking for a job and cannot find one.
Bakersfield and San Louis Obispo are only a bit over two hours away by car, so it is fairly easy for folks to move from one to the other to get access to the stronger labor market. Such moves, however, are not common, especially for people with lower levels of education.
In a new study published in the Journal of Regional Science (working version here), economist Sydney Schreiner Wertz examines the impact that business dynamism has on location decisions. Wertz uses a metro area's rate of job creation and its establishment entry rate to measure local business dynamism. Using data from 1997 to 2011, she finds that workers with only a high school degree are less likely to locate in metro areas with more dynamic business environments. In her words, "a one standard deviation increase in business dynamism is associated with a 2%–4% increase in the probability a college graduate chooses a metropolitan statistical area and an 8%–15% decrease for high school graduates with no college experience." In short, workers with more formal education are more likely to choose dynamic labor markets than workers with less formal education.
Wertz's study does not directly examine why people with less education are less likely to reside in metro areas with more dynamic business environments, but there are several possible reasons. One is housing prices. Housing is expensive in many cities with plenty of economic opportunities–in no small part because of land-use regulations that restrict supply–and these high housing costs may deter some people from moving. Wertz's analysis, however, accounts for housing prices and wages, so there is likely something else driving the effect.
Another possibility is social connections. People with less education make less money on average, which may make them more reliant on family and friends for things like childcare or emergency financial assistance. Moving, even if only a couple hours away, can upend such arrangements which reduces the net benefit of getting a better job.
Finding a cause, or causes, will require more research, but Wertz's findings have important implications today. Unemployment rates are higher for people with less education, so they are the ones who should move to metro areas with more employment opportunities. If they do not move and are unable to find work, they are likely to rely on government benefits such as disability, food stamps, and Medicaid to make ends meet. While some people need these benefits, able-bodied people who use them rather than move to find work put unnecessary strain on the system.
If people do not follow jobs, then it is more important for places to keep the jobs they have. Local economies rise and fall for a variety of reasons, and this means jobs get destroyed in some places and created in others. This type of creative destruction is good for the economy overall since it means resources–labor, raw materials, capital–can be put to their most productive uses, which results in more output for everyone.
If workers are not moving, then there could be a spatial mismatch between where the raw materials and capital end up and where the workers are. In the short run this means higher wages in places with the greatest demand for workers. In the long run, firms are likely to increase their use of technology such as robots and AI to offset some of the labor shortages. In the places where jobs are destroyed, wages could stay permanently lower and unemployment permanently higher.
Cities and metro areas that are relatively undynamic can improve their situations. Lowering taxes, cutting unnecessary regulations, and spending tax dollars more efficiently can boost employment and economic growth. While places that implement these reforms may not attract many new people with low levels of formal education, they will improve the fortunes of the ones who already live there.
Steady migration from places that lack jobs to places that have them is an important part of a well-functioning market economy. Without more labor migration America could find itself stuck in a situation where highly educated people thrive in dynamic, growing metro areas while less educated people languish in declining ones. We need to figure out why domestic migration is waning and take steps to reinvigorate it before it is too late.
Adam A. Millsap is the Senior Fellow for economic opportunity issues at Stand Together and Stand Together Trust. I write about state and local policy, urban development, population trends, and labor markets. My writing has appeared in national outlets such as USA Today, US News and World Report, Real Clear Policy, and The Hill, as well as regional outlets such as the Detroit Free Press, Las Vegas Sun, Cincinnati Enquirer, and Orange County Register, among others. I am also the author of Dayton: The Rise, Decline, and Transition of an Industrial City. In addition to my research I have taught courses in economics at Florida State University, Clemson University, and George Mason University and I have stellar reviews on Rate My Professor. I earned my master's and PhD in economics from Clemson University and a BS in economics and a BA in comparative religion from Miami University in Ohio.