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1 December 2014 CFA Institute Journal Review

The Geography of Joblessness (Digest Summary)

  1. Marc L. Ross, CFA

Where someone lives can play a role in unemployment because part of the difficulty of getting a job is getting to it.

What’s Inside?

The lack of a requisite skill set is not the only determinant of unemployment. Living far from areas where job opportunities are more abundant may be a factor as well.

How Is This Article Useful to Practitioners?

Geography has a role in unemployment. Proposed by Harvard University economist John Kain in 1965, the spatial-mismatch hypothesis attempted to explain the high rate of unemployment in many black inner-city communities in the United States relative to that of the nation as a whole, for which unemployment was quite low. Kain’s theory was that as jobs moved away from the cities, those who lived there could not move closer to where the jobs had relocated because of racial discrimination in housing.

Urban economists have debated the merits of Kain’s theory. Some supported it, whereas others believed that the correlation between where one lived and one’s ability to find a job may exist but not be causal. For years, adequate data have been lacking to provide sufficient information for meaningful analysis. In addition, the data tend to be cross-sectional (a look at the economy at one point in time) rather than longitudinal. This lack of data has made it difficult to sort out cause and effect.

A recent study from the National Bureau of Economic Research overcomes these deficiencies. Examining job searches of almost 250,000 poor people living in nine cities in the Midwest of the United States, the authors of the study repeated observations over a number of years and considered only workers who lost jobs through large-scale layoffs. For each worker, they built an accessibility index that includes an estimate of how far a jobseeker is from employment opportunities and is adjusted for the number of other people looking for the same jobs. The authors’ research confirmed what Kain posited long ago—a spatial mismatch exists. Poorer people cannot afford to live where the job opportunities are. Moreover, the problem is a global one, as indicated by research from France and England that arrived at similar conclusions.

Labor economists and policymakers will find this research informative.

Abstractor’s Viewpoint

Not merely a function of inadequate training and poorly designed public policy, unemployment is also often a function of distance between where workers live and where the jobs are. Spatial mismatch does exist and presents a challenge to policymakers, economists, and governments looking for a solution. Governments could address this issue by changing zoning laws to allow for less expensive housing and by providing better public transportation.

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