It's not a stretch to put two and two together: U.S. households are holding leveraged assets (homes) that are falling in value. Households cannot, or will not, sell their homes; and instead of moving where the work is, they stay put. This is not efficient, as normally household migration picks up during an economic downturn. Chris Nekarda at UC, San Diego confirms this cycle of migration (via Economist's View):
In fact, geographic mobility is moderately countercyclical—that is, more people move during recessions than during booms (relative to trend). This may seem counter-intuitive but makes economic sense.
Geographic mobility is a means of reallocating resources, in this case labor, to more efficient uses. In the past, 70 percent of people who move indicated having moved for economic reasons and up to 50 percent of those moves occurred because of a job separation [Lansing and Morgan (1967); Bartel (1979)]. In particular, there is a significant positive relationship between unemployment and geographic mobility [Bartel (1979); Schlottmann and Herzog Jr. (1981, 1984)]. Thus, countercyclical mobility is consistent with reallocation of idle workers across space.
Ryan Avent over at the Bellows Approaching the City blog writes a nice piece about the U.S. employment report released last week. He contends that there is a "decent" probability that the economy will experience a jobless recovery due to the oncoming shrinkage of key industries (construction being one); and therefore, workers must transition into other industries, which may be a slow and arduous process.
The sharp drop in migration increases further the odds of a jobless recovery. Since households are not moving to find work - especially away from those areas hit hardest in the housing market (see chart in this article and the WSJ article). The sectoral shifts and associated labor adjustments will take longer.
In contrast, Canada's labor force is migrating, as signs emerge of workers moving east where are the jobs. According to the Globe and Mail:
George Halliwell has been a headhunter in Charlottetown for the past seven years and has never seen such a wave of Canadians clamouring to move east.
“I'm searching for an engineer in Halifax right now – and everyone from the automotive industry in Ontario is applying for the job. They might make $60,000 in Toronto or Guelph, but they're willing to take $50,000 here because of the housing costs, the way of life is a lot simpler, there are no traffic jams and it's more family oriented.”
Migration flows reflect the changing tide. The region posted the smallest net outflow last year since 1984, according to the council. (In 2008, a net 500 people left Atlantic Canada to go to other provinces – a far cry from 2006, when a net 13,000 people left the region).
The precipitous decline of the U.S.housing market is rippling through the economy in very direct ways, via the financial markets and consumption, but also in more indirect ways. There are going to be more lasting effects as housing drives a wedge between the current migration pattern and its more efficient counterpart.