(2017-08-19) The Real Driver Of Regional Inequality In America

The real driver of regional inequality in America

Ganong and Shoag argue that the slowing population growth in rich cities and the slowing of regional income convergence are intimately linked trends.

even as the richest cities have gotten richer on a per capita basis, their share of aggregate national output has stagnated because their populations are growing slowly.

Less skilled workers used to move to rich states to increase their wages.

For skilled workers, this trade-off is worth it, but for the Working class, it generally isn’t. Consequently, working-class people have begun to move out of the rich states and toward the cheap ones — throwing the pattern of convergence into reverse.

Zoning restrictions that prevent adequate levels of house building mean that much of the higher incomes earned in rich states simply pass through in the form of higher housing costs.

This chart shows that until 1990 or so, both skilled and unskilled workers could improve their standard of living, even considering housing costs, by moving to a high-income state. But the net gains for unskilled workers began to diminish sharply, and by 2010 a typical low-skill household was actually worse off in a high-income state due to the even higher housing costs.

The housing fix for regional inequality entails more rather than less concentration of economic activity in rich coastal metro areas.

This would leave almost everyone better off, but it’s not exactly the political solution to the problem of regional inequality that elected officials are looking for.