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Why Has Regional Convergence in the U.S. Stopped?

Author

Listed:
  • Ganong, Peter

    (Harvard University)

  • Shoag, Daniel

    (Harvard University)

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.

Suggested Citation

  • Ganong, Peter & Shoag, Daniel, 2012. "Why Has Regional Convergence in the U.S. Stopped?," Working Paper Series rwp12-028, Harvard University, John F. Kennedy School of Government.
  • Handle: RePEc:ecl:harjfk:rwp12-028
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    References listed on IDEAS

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    Cited by:

    1. J. Matthew Shumway & Samuel M. Otterstrom, 2015. "Income Migration and Income Convergence across U.S. States, 1995–2010," Growth and Change, Wiley Blackwell, vol. 46(4), pages 593-610, December.
    2. Berger, Thor & Frey, Carl Benedikt, 2016. "Did the Computer Revolution shift the fortunes of U.S. cities? Technology shocks and the geography of new jobs," Regional Science and Urban Economics, Elsevier, vol. 57(C), pages 38-45.
    3. repec:spr:anresc:v:58:y:2017:i:3:d:10.1007_s00168-017-0811-z is not listed on IDEAS
    4. Cole, Ismail M., 2014. "Short- and long-term growth effects of special interest groups in the U.S. states: A dynamic panel error-correction approach," MPRA Paper 54455, University Library of Munich, Germany, revised 02 Mar 2014.
    5. Modestino, Alicia Sasser & Shoag, Daniel & Ballance, Joshua, 2015. "Upskilling: do employers demand greater skill when skilled workers are plentiful?," Working Papers 14-17, Federal Reserve Bank of Boston.
    6. Thor Berger & Carl Benedikt Frey, 2016. "Structural Transformation in the OECD: Digitalisation, Deindustrialisation and the Future of Work," OECD Social, Employment and Migration Working Papers 193, OECD Publishing.

    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • R52 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Land Use and Other Regulations

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