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Why Has Regional Income Convergence in the U.S. Declined
TL;DR: This article developed a model in which rising housing prices in high-income areas deter low-skill migration and slow income convergence using a new panel measure of housing supply regulations, demonstrating the importance of this channel in the data.
Abstract: The past thirty years have seen a dramatic decline in the rate of income convergence across states and in population flows to high-income places These changes coincide with a disproportionate increase in housing prices in high-income places, a divergence in the skill-specific returns to moving to high-income places, and a redirection of low-skill migration away from high-income places We develop a model in which rising housing prices in high-income areas deter low-skill migration and slow income convergence Using a new panel measure of housing supply regulations, we demonstrate the importance of this channel in the data
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TL;DR: In this paper, a cost-based approach is employed to evaluate whether a housing market is delivering appropriately priced units, i.e., whether market prices (roughly) equal the costs of producing the housing unit.
Abstract: In this essay, we review the basic economics of housing supply and the functioning of US housing markets to better understand the distribution of home prices, household wealth, and the spatial distribution of people across markets. We employ a cost-based approach to gauge whether a housing market is delivering appropriately priced units. Specifically, we investigate whether market prices (roughly) equal the costs of producing the housing unit. If so, the market is well-functioning in the sense that it efficiently delivers housing units at their production cost. The gap between price and production cost can be understood as a regulatory tax. The available evidence suggests, but does not definitively prove, that the implicit tax on development created by housing regulations is higher in many areas than any reasonable negative externalities associated with new construction. We discuss two main effects of developments in housing prices: on patterns of household wealth and on the incentives for relocation to high-wage, high-productivity areas. Finally, we turn to policy implications.
269 citations
TL;DR: The authors argue that changes in the nature of work, many of which are technological in origin, have been more disruptive and less beneficial for non-college than college workers, and that this deskilling reflects the joint effects of automation and, secondarily, rising international trade, yielding a disproportionate polarization of urban labor markets.
Abstract: US cities today are vastly more educated and skill-intensive than they were five decades ago. Yet, urban non-college workers perform substantially less skilled jobs than decades earlier. This deskilling reflects the joint effects of automation and, secondarily, rising international trade, which have eliminated the bulk of non-college production, administrative support, and clerical jobs, yielding a disproportionate polarization of urban labor markets. The unwinding of the urban non-college occupational skill gradient has, I argue, abetted a secular fall in real non-college wages by: (1) shunting non-college workers out of specialized middle-skill occupations into low-wage occupations that require only generic skills; (2) diminishing the set of non-college workers that hold middle-skill jobs in high-wage cities; and (3) attenuating, to a startling degree, the steep urban wage premium for non-college workers that prevailed in earlier decades. Changes in the nature of work—many of which are technological in origin—have been more disruptive and less beneficial for non-college than college workers.
219 citations
01 Jan 2017
TL;DR: A meaningful rise in labor force participation will require a reversal in the secular trends affecting various demographic groups, and perhaps immigration reform.
Abstract: The U.S. labor force participation rate has declined since 2007, primarily because of population aging and ongoing trends that preceded the Great Recession. The labor force participation rate has evolved differently, and for different reasons, across demographic groups. A rise in school enrollment has largely offset declining labor force participation for young workers since the 1990s. Labor force participation has been declining for prime age men for decades, and about half of prime age men who are not in the labor force may have a serious health condition that is a barrier to working. Nearly half of prime age men who are not in the labor force take pain medication on any given day; and in nearly two-thirds of these cases, they take prescription pain medication. Labor force participation has fallen more in U.S. counties where relatively more opioid pain medication is prescribed, causing the problem of depressed labor force participation and the opioid crisis to become intertwined. The labor force participation rate has stopped rising for cohorts of women born after 1960. Prime age men who are out of the labor force report that they experience notably low levels of emotional well-being throughout their days, and that they derive relatively little meaning from their daily activities. Employed women and women not in the labor force, by contrast, report similar levels of subjective well-being; but women not in the labor force who cite a reason other than "home responsibilities" as their main reason report notably low levels of emotional well-being. During the past decade, retirements have increased by about the same amount as aggregate labor force participation has.
208 citations
TL;DR: A wide array of local government regulations influences the amount, location, and shape of residential development as discussed by the authors, and many theories have been developed to explain why regulation arises, including the role of homeowners in the local political process, the influence of historical density, and the fiscal and exclusionary motives for zoning.
Abstract: A wide array of local government regulations influences the amount, location, and shape of residential development. In this chapter, we review the literature on the causes and effects of this type of regulation. We begin with a discussion of how researchers measure regulation empirically, which highlights the variety of methods that are used to constrain development. Many theories have been developed to explain why regulation arises, including the role of homeowners in the local political process, the influence of historical density, and the fiscal and exclusionary motives for zoning. As for the effects of regulation, most studies have found substantial effects on the housing market. In particular, regulation appears to raise house prices, reduce construction, reduce the elasticity of housing supply, and alter urban form. Other research has found that regulation influences local labor markets and household sorting across communities. Finally, we discuss the welfare implications of regulation. Although some specific rules clearly mitigate negative externalities, the benefits of more general forms of regulation are very difficult to quantify. On balance, a few recent studies suggest that the overall efficiency losses from binding constraints on residential development could be quite large.
192 citations
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TL;DR: In this paper, the authors quantify the amount of spatial misallocation of labor across US cities and its aggregate costs and find that these constraints lowered aggregate US growth by more than 50% from 1964 to 2009, while high productivity cities like New York and the San Francisco Bay Area have adopted stringent restrictions to new housing supply, effectively limiting the number of workers who have access to such high productivity.
Abstract: We quantify the amount of spatial misallocation of labor across US cities and its aggregate costs. Misallocation arises because high productivity cities like New York and the San Francisco Bay Area have adopted stringent restrictions to new housing supply, effectively limiting the number of workers who have access to such high productivity. Using a spatial equilibrium model and data from 220 metropolitan areas we find that these constraints lowered aggregate US growth by more than 50% from 1964 to 2009.
186 citations
References
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01 Jan 1991
TL;DR: In this paper, the authors use the neoclassical growth model as a framework to study convergence across the forty-eight contiguous U.S. states using data on personal income since 1840 and on gross state product since 1963.
Abstract: A key economic issue is whether poor countries or regions tend to grow faster than rich ones: are there automatic forces that lead to convergence over time in the levels of per capita income and product? The authors use the neoclassical growth model as a framework to study convergence across the forty-eight contiguous U.S. states. They exploit data on personal income since 1840 and on gross state product since 1963. The U.S. states provide clear evidence of convergence, but the findings can be reconciled quantitatively with the neoclassical model only if diminishing returns to capital set in very slowly. Copyright 1992 by University of Chicago Press.(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)
3,139 citations
TL;DR: In this paper, the role of wages and rents in allocating workers to locations with various quantities of amenities is discussed, and it is shown that if the amenity is also productive, then the sign of the wage gradient is unclear while the rent gradient is positive.
Abstract: This study focuses on the role of wages and rents in allocating workers to locations with various quantities of amenities. The theory demonstrates that if the amenity is also productive, then the sign of the wage gradient is unclear while the rent gradient is positive. The theory is extended to include the housing market and nontraded goods. These extensions require little modification of the conclusion. The empirical work on wages shows that the regional wage differences can be explained largely by these local attributes. With the use of site price data, implicit prices are estimated and quality of life rankings for the cities are computed.
2,940 citations
TL;DR: This paper found that the slowing of the growth of overall wage inequality in the 1990s hides a divergence in the paths of upper-tail (90/50) inequality and lower-tail inequality, even adjusting for changes in labor force composition.
Abstract: A recent “revisionist” literature characterizes the pronounced rise in U.S. wage inequality since 1980 as an “episodic” event of the first half of the 1980s driven by nonmarket factors (particularly a falling real minimum wage) and concludes that continued increases in wage inequality since the late 1980s substantially reflect the mechanical confounding effects of changes in labor force composition. Analyzing data from the Current Population Survey for 1963 to 2005, we find limited support for these claims. The slowing of the growth of overall wage inequality in the 1990s hides a divergence in the paths of upper-tail (90/50) inequality—which has increased steadily since 1980, even adjusting for changes in labor force composition—and lower-tail (50/10) inequality, which rose sharply in the first half of the 1980s and plateaued or contracted thereafter. Fluctuations in the real minimum wage are not a plausible explanation for these trends since the bulk of inequality growth occurs above the median ...
2,095 citations
TL;DR: In this paper, satellite-generated data on terrain elevation and presence of water bodies were used to estimate the amount of developable land in U.S. metropolitan areas and found that residential development is effectively curtailed by the presence of steep-sloped terrain.
Abstract: I process satellite-generated data on terrain elevation and presence of water bodies to precisely estimate the amount of developable land in U.S. metropolitan areas. The data show that residential development is effectively curtailed by the presence of steep-sloped terrain. I also find that most areas in which housing supply is regarded as inelastic are severely land-constrained by their geography. Econometrically, supply elasticities can be well characterized as functions of both physical and regulatory constraints, which in turn are endogenous to prices and demographic growth. Geography is a key factor in the contemporaneous urban development of the United States.
1,609 citations
TL;DR: The authors found that men who were educated in states with higher-quality schools have a higher return to additional years of schooling and higher rates of return are also higher for individuals from states with better-educated teachers and with a higher fraction of female teachers.
Abstract: This paper estimates the effects of school quality--measured by the pupil/teacher ratio, average term length, and relative teacher pay--on the rate of return to education for men born between 1920 and 1949. Using earnings data from the 1980 census, we find that men who were educated in states with higher-quality schools have a higher return to additional years of schooling. Rates of return are also higher for individuals from states with better-educated teachers and with a higher fraction of female teachers. Holding constant school quality measures, however, we find no evidence that parental income or education affects average state-level rates of return.
1,505 citations