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Re: Unemployment and State Variation in Unemployment Rates (Updated)

posted Aug 21, 2011, 8:34 AM by Kyle Herkenhoff   [ updated Sep 25, 2011, 5:04 PM ]
Dmitry Plotnikov has taken the time to respond, see his comment here dmitry plotnikov's blog. He cites Kaplan's work on interstate mobility measures and how the CPS changed their procedure for sampling. He also quotes many other sources and provides a good argument against the importance of mobility. I will rebut his argument (Dima, dont take this personally).

Does a flat mobility rate mean that the housing policies have not distorted decisions to move? Does a flat mobility rate among unemployed homeowners (which has never reached the level it is currenty) mean that the housing policies have not distorted decisions to move? The last time the United States saw high mobility rates was during the 1981 recession. The image below is taken from the March CPS. Regardless of the drop in 2005 (which is likely due to hot-deck imputation for moving rates, which is simply a way of matching a respondent to a similar non-respondent and using this info to guess a likely response to fill in the missing values for the non-respondent), since the recession began, the mobility rate is flat. In the Figure below, the mobility rate is flat for homeowners (even in the face of the largest housing bust of generation). Renters respond and start to move (the spike in renter mobility), but homeowners do not respond. The important questions is what is the counterfactual mobility rate? What would mobility be if the homeowners were given incentives to move? If these movers selected looser labor markets (high number of vacancies to unemployed persons), what would the unemployment rate be? Mobility does not need to fall per se for there to be active distortions that matter.

Secondly, in terms of negative equity, Kris Gerardi from the Atlanta Fed tipped me off about the new paper by Ferreira, Gyourko and Tracy (Sept. 2011) that updated to their earlier findings on reduced mobility and the housing bust. They affirmed their old results and in doing so expelled Schulhofer-Wohl's results:

"Our updated estimates corroborate our previous results: negative equity reduces household mobility by 30 percent, and $1,000 of additional mortgage or property tax costs reduces household mobility by 10%-16%. Schulhofer-Wohl’s finding of a slight positive correlation between mobility and negative equity appears due to a large fraction of false positives, as his coding methodology has the propensity to misclassify almost half of the additional moves it identifies relative to our measure of permanent moves. This also makes his mobility measure dynamically inconsistent, as many transitions originally classified as a move are reclassified as a non-move when additional AHS panels become available."

In terms of construction, Steve Davis, from Chicago,made a comment about construction workers during the presentation of my paper with Lee Herkenhoff Ohanian movie (its at the end of the video during the discussion). He was interested in distortionary policies in construction and suggested that the effect is at most .5%. Construction simply is not the driving force in unemployment, and it is not large enough to explain the picture below with shows variance of 7 percentage points squared- if we were to count the sectors that had the biggest busts, and the most variance in the bust across states, it would be useful to note that there are 50% more wholesale and retail trade persons who are unemployed as of July 2010 -- and most of them are not from Kansas (1.5 million unempl. construction workers, 2 million unempl. wholesale and retail trade workers, 13.9 million total unempl. workers). In July 2011 when the ratio of unemployed construction to unemployed wholesale and retail trade workers was one half (see the numbers in Table A-14 here, unemployment by industry).

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