Media Briefings

MEAGRE RETURNS TO WORK REDUCES GEOGRAPHICAL MOBILITY OF THE LOW SKILLED

  • Published Date: March 2015

UK university graduates are more than twice as likely to move region compared with non-graduates. This fact may appear puzzling, given the large regional disparities in low skilled job opportunities: indeed, it is well known that low skilled workers bear the brunt of the North-South divide.

But in research to be presented at the Royal Economic Society’s 2015 annual conference, Michael Amior argues that the obstacles to low skilled mobility are exactly those that sustain high levels of low skilled joblessness: meagre returns to employment for both workers and firms. These meagre returns have a particularly debilitating effect on long-distance job finding: job offers are usually insufficient to justify the cost of migration.

This effect is reinforced by the search behaviour of both firms and workers. Since low skilled employees bring little value to firms, they have weaker incentives to create such jobs. And they also spend comparatively less on job advertising, particularly at longer distances. And for similar reasons, lower skilled workers apply for fewer jobs and especially in other towns.

These findings suggest that policy interventions that aim to address migration costs exclusively may only have a limited impact on employment. Low skilled immobility is less a cause of joblessness and more a symptom of the low returns to work associated with limited human capital.

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Returns to employment are limited in low skilled markets for three reasons. First, average labour productivity is lower relative to out-of-work income. Second, skills are less specialised, so there is less incentive to search hard for the ideal job match. For example, there is little advantage to stacking shelves in a London shop compared with a Liverpool shop. And third, job tenures tend to be shorter (presumably linked to low productivity), which makes it harder to justify moving home for the sake of a particular job.

In this sense, lower skilled labour markets are relatively poorly integrated geographically. This is consistent with US survey evidence on reported reasons for moving. The skill gap in mobility is entirely explained by workers who report moving for job-related reasons. And among the lowest skilled, a quarter of these job-related moves are speculative: without a job in hand. This compares to just 5% for college graduates. Moving without a job in hand presents many risks, which explains why it is rare. Low skilled engagement in this strategy is testament to the slim investment of firms in long-distance recruitment.

There is a popular view in academic and policy circles that low skilled immobility is driven by relatively high moving costs. For example, financial constraints might be more severe, local family or social ties might be stronger, and it can be difficult to find social housing in another town. But this study shows that this view is inconsistent with US survey evidence. There is no difference across education groups in self-reported willingness to move. Instead, the evidence points to differences in the availability of ‘good jobs’ and information on those jobs.

In recent years, there has been much discussion about policies to ease the costs of moving. In 2011, the coalition government launched the HomeSwap Direct scheme to facilitate swaps of social homes. And, the government has recently been exploring a ‘Right to Move’ policy, which would give social tenants relocating for work greater priority on housing lists. And in the United States, prominent economists have advocated including relocation assistance as part of unemployment insurance.

But these findings suggest that policy interventions that address migration costs exclusively may only have a limited impact on employment. Low skilled immobility is less a cause of joblessness and more a symptom of the low returns to work associated with limited human capital.

ENDS


Michael Amior
Research Officer, Centre of Economic Performance, LSE
Email: m.a.amior@lse.ac.uk
Website: http://sites.google.com/site/michaelamior