Prior to 1980, per-capita income gaps between poor states and rich states were persistently shrinking, driven by the migration of lower-income, less skilled workers to higher-paying regions. Since then, this “regional income convergence” phenomenon has declined. What happened? As always, there’s a housing story to tell. Peter Ganong joins us to discuss his (and coauthor Daniel Shoag’s) research into the relationship between land use regulation, housing supply, household migration, and income. Their troubling finding: it no longer makes sense for many lower-income households to move to states with higher-paying jobs — after accounting for housing costs, some are actually worse off when they do so. This “skill sorting” of high-wage workers into expensive metro areas and low-wage workers into cheaper metros has worrying implications for accessing better opportunities, and much of it is driven by sharp restrictions on homebuilding in the highest-income states.

Show notes:

• Ganong, P., & Shoag, D. (2017). Why has regional income convergence in the US declined? Journal of Urban Economics, 102, 76-90.
• Hsieh, C. T., & Moretti, E. (2019). Housing constraints and spatial misallocation. American Economic Journal: Macroeconomics, 11(2), 1-39.
• Jackson, K. (2016). Do land use regulations stifle residential development? Evidence from California cities. Journal of Urban Economics, 91, 45-56.
• Saiz, A. (2010). The geographic determinants of housing supply. The Quarterly Journal of Economics, 125(3), 1253-1296.
• Bazelon and Yglesias blog post on Secret Congress.