Friday, November 4, 2011

Geographic Structural Unemployment and the Housing Market

The above video is the last half of Ben Bernanke’s news conference held 11/02/2011. At the 16:05 mark in the video a reporter asked how the tools in the Fed’s "tool kit" would work against unemployment this time around [if needed to be deployed] since the Fed’s tools/policy have not seemed to work in the recent past regarding reducing the u3 unemployment rate of 9.1% nor the u6 unemployment rate of approximately 17% (an excellent question). Bernanke went into a discussion of cyclical and structure unemployment. Bernanke went into a discussion of structural unemployment including geographic structural unemployment at the 17:14 mark.

Geographic structural unemployment is basically a situation where the demand for particular job skills appears in one section of the country but the matching skills appear in a separate part(s) of the country.

Regarding a geographical mismatch of the demand and supply of particular job skills one must consider that in many recent recessions the housing market suffered, but it wasn't illiquid. That is to say, in the past one could sell a home and take a small haircut or even a gain (just not as large of a gain). Conversely, you could, in the main, buy a home. Meaning that geographic mismatch was brought back to equilibrium as job seekers moved including job seeking home owners.

This time around, a distinct subsection of job seekers that are also home owners are upside down in home equity, near bankruptcy and unable to pay home mortgage loans or the haircut to sell is onerous. Also buying a home is very difficult for a large number of would be buyers. Hence a large number of homeowners are landlocked. They can't move [mobile to match skills to out-of-locale jobs available as they have in the past.

Note: a major recent exception was in the late 1970’s and very early 1980’s when mortgage interest rates were at record high levels which impeded buying and selling a home.

A counter trend is the “new renter” (recent marginal homeowners, now good renters) are mobile hence they can match geographically. But the "homeowner" is clearly geographically challenged regarding matching jobs to skills that require movement.

The "mobile society" is to one degree or another temporarily immobile.

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