Has the natural rate of unemployment decreased with modern travel and the Internet?

Question

The natural rate of unemployment is a combination of structural unemployment and frictional unemployment.
Structural unemployment is caused by a surplus of labor at a given wage in a given area.
Frictional unemployment is caused by workers searching for or transitioning between jobs.
However, modern travel (airplanes, automobiles, etc.) would reduce structural unemployment and frictional unemployment by allowing for faster movement of excess labor to transfer to areas with a shortage of labor; similarly, the Internet (specifically search engines, online jobs fairs, etc.) would reduce frictional unemployment by allowing for workers to search for and find jobs more easily.

Does this imply that the natural rate of employment decreased with modern travel and the Internet?

Answer 1

To me, it seems that it has increased, not decreased, due to the factors you mention. Yes, transportation and information networks enable workforce movement. But they also enable movement of goods and information - and because goods and information are more mobile than humans, they profit more, and the results of their portability outpaces the results of the workforce's increased mobility.

When goods were hard to move, a local demand had to be met by local suppliers. If a manufacturer lost a deal, it went to a local competitor instead, and the workforce could adapt easily. Now, if a manufacturer loses a deal, it goes to a competitor 5000 km away. Take for example the Ruhr area: it's still the most densely populated area in Germany, even though the steel industry which attracted workforce in the mid-20th century is gone. The Germans literally shipped one of their steel mills around the globe to China - but the workers stayed.

So, because the workforce cannot adapt to structural changes with the speed at which they are happening, the structural unemployment is higher than before networks which enabled such changes. But the increased speed of change also means more frictional unemployment. A large part of the adaptation which is happening requires people to change jobs. Also, your observation of an increased commute radius contributes to frictional unemployment too - when a person is unhappy with his job, he has more opportunities in his now increased commute area, and is more likely to change jobs.

There are lots of indirect effects too. The Internet and the transport networks enable changes in culture (e.g. today people move out of their birth town early, so may be more willing to relocate again later), business models (e.g. movie streaming) and market structure (today's trend towards ever larger corporations is enabled through, among other things, efficient information and people movement, which reduces overhead costs of giant companies, and global knowledge - I doubt that 50 years ago, an American chain for mediocre coffee in fancy large cups would have been able to establish itself in Europe. Nowadays, the culture export means that the trendy European teenager recognized the brand before they had one of the shops in their location). And they go both ways - a giant corporation may actually be more stable, and afford to keep workforce during short-term demand slumps which would have capsized a tiny manufacturer.

Whatever globalization (spearheaded by more exchange of information and goods, and even people on their respective networks) may bring in the future, it currently seems to create more unemployment - not because it's a bad thing in itself, but because in a more dynamic market, there is less job stability.

Answer 2

I expect that in the UK it has increased due to the benefit system, we now have lots of unemployment in some parts of the north, but little movement of unskilled labour.

However when the mills were built worker moved from all over the UK to them.

Therefore I don’t know how the different effect can be separated.

Answer 3

This was supposed to be a comment to @rumtscho, but it turns out to be too long, and then I kept adding information, so perhaps this deserves to be its own answer

Is an increase in mobility really detrimental for efficiency? Imagine a world with non-mobile capital and labor. Now we increase mobility of capital (but not labor). Now @rumtscho argues, this would decrease employment. In general, the opposite should happen: A decrease in rigidity increases efficiency (in almost any model I am aware of), and hence the utilization of previously unused resources.

Intuition Intuitively, imagine some people being unemployed in region XYZ, because they are stuck in a region with labor but no capital. With mobility of capital, capital will move towards that region (because unused labor promises higher returns to capital).

General Case

Technically, the change over time of the unemployment rate $u(t)$ can be denoted as

$$ \dot u(t) = s(t)(1-u(t)) + u(t)e(t)$$

where $s(t)$ is the rate of separations, and $e(t)$ is the rate at which unemployed find employment.

Now, technology can affect both $s(t)$ and $e(t)$. I have brought forward reasons why $e(t)$ may increase, and @rumtscho has brought forward reasons for why $s(t)$ can increase.

Conclusion The overall outcome is unknown. Anecdotal evidence and intuitive hand-waiving arguments have betrayed the economic profession quite often. To answer the question at hands, we need real data. Of which I, unfortunately, am not aware of.

Answer 4

Theres no natural rate of unemployment. It's essentially due to government policy. For example, in the seventies the UK hitting full employment was government policy and not hitting it was major political news. I recall watching the news amd the unemployment figures on the BBC news on a daily basis. Not that I really understood then what misery to many people those figures meant.

Since the notion of "natural unemployment" makes no sense then the question itself makes no sense. Perhaps you mean simply the rate of unemployment, per se. As leisure is not work, I do not see modern travel and the internet reduces it. It moght help fill time but is not tgen a substitute for paid work, important when all the goods of society are premised on money and divided up by work.

Another way to increase employment is simply to reduce the working week. Iceland has gone through a full dry-run that was hugely successful. It's also being tried in the UK now. Personally, I would cut the working week to 3 days. And that would most definitely include the City.

Answer 5

Not if this is the technology in “modern travel and the Internet” we can imagine.

Technology would certainly improve the natural rate of unemployment higher.

Or @rumsco Technology:

Whatever globalization (spearheaded by more exchange of information and goods, and even people on their respective networks) may bring in the future, it currently seems to create more unemployment - not because it's a bad thing in itself, but because in a more dynamic market, there is less job stability.

Yet surely we universally either capitalize or socialize the technology for less costly per utility exchange propensity in the public market (or something in between, with natural rate of unemployment as a certain x-axis). Job stability, would only half-life-really be dynamic between markets, as a given set of curves presents sinking ground costs. Rather in a living cost set of inelastic demand as it happens, such technology naturalizes like whole generation education programs, really on the price axis, not the luxury complementary dynamo greenfield horizon so exhibited by crowd favorite cookie recipe #P.

The more a commodity comes to be manufactured — the more it becomes an object of manufacture — the greater becomes that part of the price which resolves itself into wages and profit in proportion to that which resolves itself into rent. In the progress of the manufacture of a commodity, not only the number of profits increases, but every subsequent profit is greater than the foregoing; because the capital from which it is derived must always be greater. The capital which employs the weavers, for example, must always be greater than that which employs the spinners; because it not only replaces that capital with its profits, but pays, besides, the wages of weavers; and the profits must always bear some proportion to the capital. (Adam Smith, Wealth of Nations, Vol. I, p. 45)