Why Has Regional Income Convergence in the U.S. Declined?
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.
We would like to thank Marios Angeletos, Robert Barro, George Borjas, Gary Chamberlain, Raj Chetty, Gabe Chodorow-Reich, David Dorn, Bob Ellickson, Emmauel Farhi, Bill Fischel, Dan Fetter, Edward Glaeser, Claudia Goldin, Joe Gyourko, Larry Katz, and seminar participants at Harvard, Tel Aviv, Bar Ilan, Dartmouth and the NBER Summer Institute for their valuable feedback. Shelby Lin provided outstanding research assistance. We thank Erik Hurst for alerting us to the end of regional convergence and spurring us to work on an explanation. Peter Ganong gratefully acknowledges residence at MDRC when working on this project and funding from the Joint Center for Housing Studies and the NBER Pre-Doctoral Fellowship in Aging and Health. Daniel Shoag and Peter Ganong gratefully acknowledge support from the Taubman Center on State and Local Government. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Peter Ganong & Daniel Shoag, 2017. "Why Has Regional Income Convergence in the U.S. Declined?," Journal of Urban Economics, .