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Why Geographic Mobility Matters

Daniel Gross

Daniel Gross is executive editor of strategy+business.

 

Rutland, Vermont, is actively recruiting refugees from the Middle East to come live there, the New York Times reported earlier this week. The motivations aren’t purely humanitarian. Like many towns and cities in rural areas, Rutland has seen its population age and decline. Unlike many of them, though, Rutland enjoys a pretty robust employment scene. Vermont’s unemployment rate is 3.6 percent. As Rutland mayor Christopher Louras put it, “We need people.”

On the other side of the country, in northern California, there’s a distinct shortage of housing and office space, as construction has badly lagged the region’s technology boom. The housing shortage is so severe that last year, San Jose sued Santa Clara to stop a proposed real-estate development that would bring thousands of office workers to the area — on the grounds that the lack of housing would increase traffic and further drive up housing costs. In the face of intense competition for talent and space, some Bay Area firms are moving to Phoenix, where housing and labor costs are much lower.

In the U.S., much of the debate and discussion surrounding mobility focuses on social and income mobility. How well are people doing financially compared with their parents? And how well will people’s children do compared to them? Amid this conversation, geographic mobility — the need for people and companies alike to consider moving to a different location in search of a more favorable economic climate — is often overlooked. By some measures, geographic mobility has been declining. And that may help explain why the economy and the labor market aren’t firing on all cylinders.

Markets on the whole may be efficient, but the U.S. doesn’t just have one labor, housing, or office market. There are hundreds of labor and housing markets, and thousands of submarkets. And they are full of imbalances, shortages, gluts, and other inefficiencies. There are currently 5.5 million jobs open in the U.S., for example.

Or consider this. In the U.S., the unemployment rate ranges among metropolitan areas from an extraordinarily low 2.1 percent in Fargo, North Dakota, to 16.7 percent in Yuma, Arizona, and 20.3 percent in El Centro, California. Wide variations are evident even within small states. In Trenton, New Jersey, the unemployment rate is 3.5 percent; less than 80 miles away in Ocean City, south of struggling Atlantic City, it is 10.5 percent.

The simple, and extremely facile, answer to these imbalances is for people and companies to pick up and move from where conditions are difficult to ones where they are more favorable. Why don’t more tech companies in San Francisco move operations to Yuma? Why don’t more people who live in El Centro, where jobs are scarce, move to Fargo, where workers are scarce?

Indeed, significant population flows into job-rich areas have been seen. North Dakota’s oil boom, fueled by fracking in the Bakken shale, inspired thousands of people to migrate — the state’s population surged 12.5 percent between 2010 and 2015.

Why don’t more tech companies in San Francisco move operations to Yuma?

But such movement doesn’t happen as often as you might think. And in fact, there has been a noticeable decline in mobility in the U.S., according to the Census Bureau. “The percentage of Americans moving over a one-year period fell to an all-time low in the United States to 11.2 percent in 2016,” the Census Bureau reported in November. That percentage has been steadily declining over the past three decades.

Some of the reasons for inertia are obvious. People are often reluctant to leave their homes, familiar surroundings, friends and families, and the places where they have made investments, even if they realize economic opportunities may be greater elsewhere. Struggling housing markets and underwater mortgages may make it impossible for many people to move. And from companies’ perspective, labor forces and physical locations aren’t simply interchangeable, even in an age where there’s a Starbucks on every corner and people can work remotely. There aren’t enough engineers in El Centro for Silicon Valley companies to hire, and there aren’t enough houses in Fargo for potential job-seekers to move into. And as agile and nimble as companies can be, like people, they feel the need to be part of the ecosystem in which they grew up and had been thriving. If you want to be a player in film, you have to be in Los Angeles. Serious financial firms must have a presence in New York. For those in the technology game, San Francisco and Silicon Valley exert a magnetic attraction.

As the migration of tech companies to Phoenix shows, though, these rules can be broken. And this is not to suggest that the solution for economic imbalances is simply to encourage mass, rapid migrations. But as imbalances persist and grow worse, it’s clear that more people, and more companies, should be rethinking their location strategy. For those who are intent on moving ahead, moving out may have to be among the menu of options.

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Why Geographic Mobility Matters