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

Citation Type: Working Paper

Publication Year: 2012

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Abstract: The past thirty years have seen a dramatic decrease in the rate of income convergence across states. This decline coincides with a similarly substantial decrease in population flows to wealthy states. In contrast to the prior literature, we find that labor migration can quantitatively explain the observed convergence patterns.Next, we explore the reasons behind the decline in directional migration. Housing prices have risen substantially in high-income areas which, in the context of our model, generates four testable predictions. The predictions are (1) a divergence in the skill-specific economic returns to living in rich places, (2) a decline in unskilled migration to rich places, (3) continued unskilled migration to places with high income net of housing costs, and (4) continued income convergence among places with unconstrained housing supply. The data support all of these predictions.We develop a new state-level panel measure of housing supply regulations using court records. Using this as an instrument for housing prices, we document the central role of regulations and changes in housing prices in the end of income convergence.

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Authors: Shoag, Daniel; Ganong, Peter

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Publication Number: RWP12-028

Institution: Harvard University

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Data Collections: IPUMS USA

Topics: Housing and Segregation, Poverty and Welfare

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