U.S. Housing Policy and Its Impact On Unemployment

"...millions of men are marching at once toward the same horizon; their language, their religion, their manners differ; their object is the same. Fortune has been promised to them somewhere in the west, and to the west they go to find it." - Alexis De Tocqueville, Democracy In America

Whatever today's unmployment figure, the economy's continued stagnation will be expressed through a rate that is way too high. Though there's no singular way to calculate the level of joblessness stateside, the roughly 8% rate brought to us by the Labor Department speaks to something very unnatural revealing itself in the U.S. economy.

Unnatural is the proper word usage mainly because unemployment is just that. To understand why, it's useful to consider what retailers do when the goods they're selling are not attracting buyers. When this occurs retailers reduce prices to levels that attract buyers on the way to clearing unsold inventory. They don't call them "clearance sales" for nothing.

Looked at in terms of joblessness, labor is a cost like any other. As such, unemployment is high today arguably because the cost of labor has not fallen to levels that match market realities. Two obvious culprits here would be unemployment benefits that are available for 99 weeks, plus the looming impact of federal healthcare legislation that will constitute yet another per employee expense for employers.

After that, it's fair to point to taxes on income and investing that are set to rise by law in 2013, regulations that detract from the profit motive, little movement when it comes to making global trade more free, and a weak dollar that is driving investment away from productive ideas and into inflation hedges. The economy is limp, the latter state is an unnatural result of government error, and the aforementioned government barriers to growth must loom large in any discussion of stagnancy and high unemployment.

Perhaps mentioned less is the role of housing policy in the high rate of unemployment. No doubt some assert that the housing market must recover in order for employment to recover, but this line of reasoning surely gets things backwards. It seems the more realistic way of approaching housing's role in joblessness is to consider how housing subsidies perhaps limit individual mobility.

The above is important in light of some statistics about job creation unearthed by UC Berkeley professor Enrico Moretti in his essential new book, The New Geography of Jobs. Though Moretti doesn't draw the correlation between housing policy and unemployment, the reader can certainly connect the dots.

As Moretti explains, "Americans have historically been an unusually mobile people, constantly seeking better economic conditions." This uniquely American mobility remains the norm even in modern times, or as Moretti puts it, "Today about half of American households change addresses every five years, a number that would be unthinkable in Europe." Humans surely are capital, and as evidenced by the migratory ways of Americans, it seems they have a tendency to constantly move their skills to their highest use.

At present the federal government goes to great lengths in order to boost home ownership in the United States. Interest paid on home mortgages is tax deductible, federal loans at lower rates of interest are available to some, mortgage behemoths Fannie Mae and Freddie Mac seek to make an already liquid mortgage market even more liquid, all the while guaranteeing certain mortgages, and then one driver of the Fed's quantitative easing efforts has been a reduction of mortgage interest rates in order to revitalize a moribund housing market. Whether on purpose or not, the federal government has and continues to go to great lengths to encourage a highly mobile population to become less so.

What's impossible to quantify is how much subsidies meant to promote home ownership blunt this very American desire to be on the move. On its face it's certainly fair to presume that ownership creates among Americans a greater desire to stay put than they would otherwise exhibit if living in a rented space. If so, it could be argued that federal housing subsidies are actually quite cruel for making individuals less mobile in pursuit of the best job opportunities at a time when harsh economic realities command that they be nimble.

Looked at in light of high unemployment at present, it's important to point out that where an individual is located greatly impacts the amount and quality of job opportunities. Location surely matters, Americans tend to migrate where the jobs are, but at present underwater mortgages and soft housing markets can't be helping when it comes to Americans leaving depressed areas in favor of more vibrant locales.

The logical response to the location argument is that the "death of distance" has made where one lives irrelevant. There's surely something to the latter assertion, and companies like oDesk facilitate the process whereby a software entrepreneur in Spokane can hire software programmers in Shanghai to complete work necessary to grow a business.

Technology has surely made where one lives a less pressing matter than even 10 years ago, but it's also useful to point out that the death of distance is surely overrated. Figure Mark Zuckerberg started Facebook while at Harvard and it would be naïve for one to presume that he lacked access to some pretty bright computer minds in Cambridge. Despite that, Zuckerberg ultimately moved Facebook to Palo Alto, and the move was driven by his desire to be near a cluster of engineers possessing the exact skills he needed in order to grow the business.

How Zuckerberg's story applies to employment growth more broadly is rooted in the impact of highly valued companies full of high-paid employees on the community around them. Moretti's research indicates "that for each new high-tech job in a city, five additional jobs are ultimately created outside of the high-tech sector in that city, both in skilled occupations (lawyers, teachers, nurses) and in unskilled ones (waiters, hairdressers, carpenters)." Measuring Facebook's impact alone, Moretti estimates that the booming social networking firm has created 53,000 new jobs among workers producing "apps", and then at least 130,000 more positions in related business services.

Though Apple Inc. employs 12,000 in Cupertino, Moretti calculates that the technology innovator is directly related to 60,000 additional service jobs; 36,000 of those positions unskilled versus 24,000 skilled. In Seattle, though Boeing employs more workers than does Microsoft, the high average pay ($170,000/yr.) at the software giant means that Microsoft's employees create far more jobs in Seattle than do Boeing's employees.

What all these numbers seem to indicate is that the cure for unemployment, particularly in a difficult economy like today's, is mobility. Mobility allows the skilled and unskilled to migrate toward the parts of the country where the greatest amount of innovation is occurring; the latter the driver of high paying jobs that serve as a jobs multiplier.

Of course the problem at the moment is that when Americans need to be the most flexible in pursuit of economic opportunity irrespective of locale, they're in truth quite stiff thanks to houses they're having trouble selling. This naturally restrains economic and employment growth in the here and now, and then even in better economic periods it's worth asking if subsidization of immobility (even in frothy housing markets it's hard to quickly sell in order to move) is restraining our natural - and very American - desire to relentlessly pursue the best employment opportunities.

Labor is a cost much like any other, and with unemployment still abnormally high nearly four years after the financial crisis began, it's not satisfactory for sentient minds to assume that the level of joblessness stateside is natural. Unemployment is actually quite unnatural, and the first place to look is for barriers that are restraining the fall of wage demands to market clearing levels.

After that, it's worth asking if another unnatural factor at work is the desire among politicians to make home ownership as broad as possible. Though some can doubtless point to some positive tradeoffs that might result from owning a home, logic tells us that ownership at the very least makes us less mobile than we might otherwise be. That's particularly true amid a moderation of home prices that has made selling them abnormally difficult.

Looked at in light of unemployment in concert with a tough housing market, it's not unrealistic to conclude that there's some relation. As the statistics about company formation show, where the innovators set up shop is where jobs multiply. The problem, at least at the moment, is that the proverbial ball-and-chain that is housing has made it more difficult for those most in need of work to migrate to locations where work is plentiful.

Housing subsidies have long been touted as compassionate for giving Americans a piece of the supposed American dream. Though wise minds can argue about the good and bad of the latter, what's increasingly hard to argue with is that many Americans are experiencing the very negative tradeoff of home ownership through an inability to move with great speed to where the jobs are being created.