 Why Has Regional Convergence in the U.S. Stopped?Peter Ganong and
Daniel Shoag
Working Paper Series from Harvard University, John F. Kennedy School of Government Abstract: The past thirty years have seen a dramatic decrease in the rate of income convergence across U.S. states. This decline coincides with a similarly substantial decrease in population flows to wealthy states. We develop a model where labor mobility plays a central role in convergence and can quantitatively account for its disappearance. We then link this decline in directional migration to a large increase in housing prices and housing regulation in high-income areas. The model predicts that these housing market changes generate (1) a divergence in the skill-specific economic returns to living in rich places, (2) a decline in low-skilled migration to rich places and continued low-skilled migration to places with high income net of housing costs, (3) a decline in the rate of human capital convergence and (4) continued income convergence among places with unconstrained housing supply. Using Census data, we find support for the first three hypotheses. To test the fourth hypothesis, we develop a new state-level panel measure of housing supply regulations. Using this measure as an instrument for housing prices, we document the central role of housing prices and building restrictions in the end of income convergence. JEL-codes: E24 J23 J24 R14 R23 R52 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ecl:harjfk:rwp12-028 Access Statistics for this paper More papers in Working Paper Series from Harvard University, John F. Kennedy School of Government Contact information at EDIRC. |
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