Will Mayor Mamdani Cause Unemployment to Rise in New York City?

When a Superstar City elects a Socialist, does the unemployment rate go up or down? Do you remember the Kevin Bacon movie “Footloose”? The answer to my first question hinges on whether NYC firms are more footloose than NYC workers. If firms move away from NYC and fewer firms move to NYC during the Mamdani Era, then NYC labor demand will decline. If NYC residents love their apartment and neighborhood, they are more likely to stay, even as jobs leave. In this case, the unemployment rate in the City would rise. If a Socialist Mayor offers generous unemployment insurance benefits, then this only reinforces this effect, and the unemployment rate will grow because people who would move away to areas with more robust local labor markets will stick around to collect checks signed by Mayor Mamdani.

Now, with this preamble, I want to discuss a new point. A Socialist Mayor will strengthen rent control laws to protect tenant rights. A recently published paper in the Journal of Urban Economics by some friends of mine points out the unintended consequences of rent control on increasing unemployment rates.

I first got to know two of the authors when we were all colleagues at Johns Hopkins. As I understand their logic, if Matt lives in a Queens rent controlled apartment and I lose my job or I don’t have a job and I’m living with my parents, I am less likely to search for work further from where I live in the metro area (such as in Westchester) or to move to another local labor market such as Chicago because I have such a great deal on my apartment. Rent control locks people in because they don’t want to lose their great deal.

This is a very important point. When progressive officials think they are helping people by giving them spatially tied “free stuff” (such as an apartment subsidy), they are actually anchoring them to a sinking Titanic! Such individuals would have more option value and flexibility if they did not receive a spatial subsidy that tied them to an unproductive place. This is why Milton Friedman supported portable vouchers for paying for housing rather than subsidizing place-based public housing (such as the Taylor Homes in Chicago).

In an increasingly risky economy that faces a variety of shocks, we will be better able to adapt to shocks ranging from China’s exports to wacky political policy shifts to natural disasters and to AI penetration if we remain geographically mobile. Those who are footloose bear less of the risk of place-based shocks. As I have discussed in my work on adapting to climate change, those who put all of their “eggs in one basket” are at greater risk because they face greater costs of adjusting to place-based shocks.