One of the things George Akerlof was thinking about as he wrote his famous paper on the market for lemons was the market for low skilled labour. The idea that lemons avoidance is a big part of the story of poor demand for low skilled workers has always struck me as very powerful as I consider my own attempts to avoid lemons in the labour market at all costs. Still it is not regarded as polite to say these things and as a result it seems to be poorly represented in policy discussion. It seems easy to say that the low skilled are having a hard time in the labour market, so we should help them out, create jobs and so on. So we should. But we should also be aware that people with a range of ‘issues’ in the labour market – often relating to basic standards of responsibility – create an environment in which businesses simply won’t bother hiring in that part of the market.
I don’t know if it’s related to the phenomenon, but I note that in the latest NBER working papers, there’s one which uses some new techniques to assess the success of California’s ‘enterprize zones’ which are a major means of seeking to help develop socially and economically distressed areas. The researchers conclude that they don’t work.
The evidence indicates that enterprise zones do not increase employment. We also find no shift of employment toward the lower-wage workers or manufacturing sector targeted by enterprise zone incentives. We conclude that the program is ineffective in achieving its primary goals.