Olaf Gersemann

Cowboy Capitalism

When established industries in a region go under, the only thing that can prevent a permanent rise in unemployment is structural change. Either fresh capital flows into the region—attracted for example because the lower demand for labor has put downward pressure on wages—or the unemployed move away.

That process of adapting to new realities obviously functions more smoothly in the United States than it does in Europe. For instance, in Germany, a country the size of Montana, just 1.44 percent of the population in 2001 moved from one state to another. In the United States, on the other hand, the number of inhabitants moving into another state was on average 2.65 percent annually during the 1990s, that is, more than 80 percent higher than in Germany.

In America, the groups that are often hit hardest by unemployment, especially low-income earners and young people, move to wherever the jobs are rather than wait for the jobs to move to them. More than 4 percent of low-income earners moved to other states annually in the 1990s. In booming cities such as Atlanta, Austin, Denver, Phoenix, and San Francisco, the number of 20- to 24-year-olds in the population grew by more than 50 percent during the 1990s; in Las Vegas it almost doubled. In old industrial cities such as Buffalo, Cleveland, and Pittsburgh, on the other hand, the number of young adults went down drastically.

This high degree of mobility likely did much to balance regional differences in unemployment. Indeed, in December 2003 the difference between the state with the lowest unemployment rate and the one with the highest was, seasonally adjusted, just 4.4 percentage points. In 43 of the 50 states the unemployment rate was within a rather narrow range of 2.5 percentage points (between 4.0 and 6.5 percent).

The situation in Germany, however, was quite different: In the Western German states in December 2003, the range was 6.6 percentage points; in Germany as a whole, it reached 13.7 points. In all of Europe, the differences are larger still. Despite the introduction of the right to move freely inside the European Union more than a decade ago, unemployment in the EU in 2001 varied between 2 percent (Berkshire, England) and almost 25 percent (Calabria, Italy).