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Geographical Rigitidies

Tyler Cowen says the slow pace of labor market recovery “is a puzzle for all theories of labor market adjustment” and briefly runs down why he thinks none can explain it. He then canvasses his own notion, which I think is implausible: “I find myself coming back to the view that many previously employed workers simply have a current marginal product pretty close to zero.”

Many? How many?

I think a neglected part of the labor market adjustment story is the geographical rigidities imposed by aspects of human nature and the housing market. There are enormous disparities in the unemployment rate from metro area to metro area that underscore the fact that our labor market is not perfectly integrated. Ask yourself why everyone doesn’t just leave greater Las Vegas, where unemployment is 14.1 percent, and move to the DC area where it’s only 6 percent. There are plenty of reasons, some we could (and should) try to remediate and some we probably can’t. But they make it difficult for modest growth to translate into maximum employment gains quickly.

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