In last week’s column, I fretted about the workers of Treorchy, South Wales, who have lost their jobs as Burberry’s shirt-making plant is closing. Unfortunately, they are not alone. Any small community with a lot vested in a single industry is vulnerable to any number of shifts in the economic landscape, whether caused by domestic or foreign competition, management blunders or technological change.
Even big cities can struggle if they overspecialise. Liverpool and Manchester are examples. Birmingham, on the other hand, has always been a city bustling away making everything and nothing in particular. As the late author Jane Jacobs once pointed out, Birmingham was thought highly inefficient compared with the specialised mills of Manchester, but when the downturn came Manchester was devastated and Birmingham kept on chugging along.
Looking to the US, one might ask why people still live in Detroit, which has suffered for so long? Why not move to Chicago or New York? People originally moved to places such as Treorchy because there was coal to be mined. Now that the mines have closed - and the Burberry factory, too - why do they stay?
One reason is that community ties matter. Many people like to stay near where they were born. But many others would like to seek new opportunities - even, dare I say it, new experiences. My father moved the family to four different locations across England in pursuit of work. I’ve also moved several times to find the right job, and only occasionally regretted it.
But emotional ties are not the only ones that bind us. There are Byzantine restrictions on cross-border migration. Philippe Legrain, author of Immigrants: Your Country Needs Them, argues that freer migration would promote creative, economically robust cities. He is right. Even when we look only at internal migration, the barriers are formidable. The British are a nation of home owners, apparently happy to pay far more for the privilege of owning their own house than they would ever pay to rent one. Other nations, happier to rent, see unemployment reduced as a result.
The economist Andrew Oswald has shown that across European countries, and across US states, high levels of home ownership are correlated with high levels of unemployment. More conventional factors such as generous welfare benefits or high levels of trade unionisation don’t explain unemployment nearly as well as the tendency to own houses.
Recent research in the Economic Journal by Jakob Munch and colleagues suggests that people who own their own homes do find jobs as quickly as those who are free to move, but do so partly by being less picky about which job to take, and by commuting further. So Professor Oswald is right to argue that we should do everything possible to remove impediments to renting or to selling a house and buying a new one. It would be handy if we were allowed to build houses near London, too.
Even if we did all this, the US economists Ed Glaeser and Joe Gyourko argue that one serious barrier remains: houses do not walk. No matter how bad things get in Detroit or Treorchy, the houses will still be there, and if they are cheap enough people will want to live in them. The likely result is a gloomy sort of segregation: those who feel that they can find a good job in the big cities will move there and pay the higher rents. Those who are less confident of that would rather have no job in a cheap house than no job in an expensive house. Detroit will have residents for a long time to come.
