Promoting labor market mobility as a strategy for job seekers can have unintended consequences, according to an IZA paper by Marco Caliendo, Steffen Künn and Robert Mahlstedt, now forthcoming in the Review of Economics and Statistics. While many countries provide financial support to unemployed individuals to encourage them to seek employment beyond their local labor market, the study suggests that offering unconditional financial support for geographical mobility may do more harm than good.
The researchers used the IZA Evaluation Dataset Survey to examine the effects of mobility programs on unemployed job seekers in Germany. These programs, which include relocation subsidies and commuting assistance, aim to eliminate financial barriers and expand the job search radius, reducing geographical mismatches in the labor market.
Key findings from the study indicate that, contrary to expectations, mobility programs lead to overall adverse labor market outcomes for unemployed job seekers. Although job seekers respond to the promotion of mobility programs by increasing their geographical search radius, this adjusted search behavior results in lower levels of average employment and earnings. The study suggests that promoting mobility programs may encourage less efficient job seekers, who are constrained in their relocation decisions, to engage in distant job searches that tie up resources better invested in local job searches.
The authors recommend addressing spatial search frictions to improve the efficiency of mobility programs. They propose enhancing the quality of distant counseling and increasing interregional collaboration between caseworkers from different employment offices or private job agents. Additionally, the study suggests focusing mobility programs on job seekers who are capable of finding and willing to accept employment in distant regions, excluding those facing strong spatial search restrictions.