In a very simple model of how the United States works, we’re a single country composed of a single labor market, and would-be workers should effortlessly migrate from places where there are no jobs to places where firms are looking to hire. In the real world, things are quite different, as this list of unemployment rates by metro area makes clear. Ryan Avent observes that “Rates differ dramatically across metros. There is a surprisingly large number of metro areas with unemployment at 7% or below.” Indeed, just looking at big cities, in Los Angeles/Long Beach/Santa Ana the unemployment rate is 10.1 percent whereas in Boston-Cambridge-Quincy it’s just 7.2 percent, in Dallas it’s 6.6 percent, and in Washington/Arlington/Alexandria it’s 5.6 percent. In greater Washington, unemployment has increased 2.6 percentage points since April 2008; in Los Angeles it’s 4.5 percentage points.
In theory, people should be moving in droves from LA to Washington, eliminating the difference, and ultimately boosting overall employment. In the real world, of course, households and families don’t operate on a frictionless plane of labor mobility that perfectly matches people with job opportunities. And part of the story of this recession is that because of the housing link, people are having unusually difficulties with relocation. That’s going to make recovery harder. A lot of people in Michigan and the Inland Empire, in particular, are going to find that they can’t really afford to leave where they are in search of better opportunities elsewhere.
This is, however, going to be an even bigger issue in Europe. On paper, the European Union has created an American-style integrated continental market. In reality, however, they still speak Spanish in Spain and Dutch in the Netherlands, and different countries remain different countries. Thus to an even greater extent than in the United States, Europe finds itself with limited labor mobility and a labor market that doesn’t live up to the rapidly transition ideal. That’s one very good reason to believe that European recovery will be slower than what we see in the United States.