Why has regional income convergence in the U.S. declined?

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.

Productivity Growth in Goods and Services Across the Heterogeneous States of America

“…where g i refers to the growth rate of labor productivity or MFP and y i,1980 refers to ALP for 32. In addition to the recent work of Ganong and Shoag (2015) and references cited therein, Barro and Sala-i-Martin too found a lack of convergence over 1980-2000. 33. The college share refers to the share of college graduates in the labor force specific to a sector-state in 1980.…”

“…Molloy, Smith, and Wozniak (2013) on the other hand argue that demographic-and industry-based explanations can be ruled out, and it is likely due to more transitions in internal labor markets. Ganong and Shoag (2015) argue that the reason regional incomes have not converged is due to housing supply constraints in the rich states.…”

“…Log of Labor Productivity (1980) Ganong and Shoag (2015), for example, have recently shown that convergence in per-capita incomes seems to have slowed down from 1980 onwards. First, given the increasing share of services across the United States, our finding of a lack of convergence in this sector provides a sectoral context.…”

Catching the whale: A comparison of place promotion strategies through the lens of Amazon HQ2

“…Proactively recruiting firms is becoming more prevalent as the economic status of regions in the United States diverges (Osgood, Opp, & Bernotsky, 2012) and the convergence between U.S. regions is no longer expected (Berry & Glaeser, 2005;Ganong & Shoag, 2017;Moretti, 2011). Thus, it has become increasingly important for localities to successfully recruit a single "big fish" firm, which may serve as a signal to other firms that the community is worthwhile (Garcia-Mila & McGuire, 2002).…”

Housing privatization in Romania

“…For example, this literature shows that the US's regional convergencea trend that took place for over one-hundred years prior to 1980has slowed, and in some places stopped. Panong and Shoag (2016) and Hsieh and Moretti (2017) argued that the main reason that workers are unable to move to higher productivity locations is the regulations which make housing supply less elastic in those locations. An inelastic housing supply causes the higher wages due to productivity increases to be reflected in higher house prices rather than more housing and employment.…”