Jul 30, 2017

The Great Stagnation: Americans stopped moving to find work

Rebecca Zisser / Axios

From the first, Americans have been on the move in "Great Migrations" for a better life, like those of the last century that saw poor blacks and whites go from the south for higher-paying work in northern cities. But no longer. Starting around 1980, working class Americans have largely stood still, and a primary reason is real estate prices, according to new research.

In a new paper, the University of Chicago's Peter Ganong and Daniel Shoag say high rent in America's most economically vibrant areas make these moves a money loser for lower-skilled workers.

Why it matters: Their relative immobility stunts a historical trend in which lower-skill American workers have climbed the income ladder. It's one reason for the decades of stagnant income documented across the West by economists.

What's to blame: The paper proposes a potential answer to a question that has nagged researchers and political observers in the current anti-establishment wave: why people in the decaying rust belt do not just move. According to the authors, a primary reason is state and local zoning regulations that have increasingly slowed housing growth in the most attractive cities since the middle of the 20th century, thus driving up real estate prices.

The paper starts with profiles combining level of education, migration and land use regulation across the country. The result: where land use is restricted, low-skill migration into those places slows.

"This is about declining opportunity for non college-educated workers," Ganong says.

The growing case for land reform: This paper is the most comprehensive of its kind, constructing a detailed land-use regulation index for more than 1,000 localities. It adds to a growing body of research that says land-use restrictions drive economic inequality and slow economic growth:

  • Harvard University's Edward Glaeser recently argued in a Brookings Institution forum on government failure that, starting in the 1970s, "We changed from a country in which landowners had relatively unfettered freedom to add [housing] density to a country in which veto rights over new projects are shared by a dizzying array of abutters and stakeholders." He finds that one-tenth of American homes are worth twice their price to build, and that these are concentrated in the most productive parts of the country
  • Chang-Tai Hsieh of the University of Chicago and Cal Berkeley's Enrico Moretti argue in a paper published in May that land-use regulation has held workers back from moving where their labor is most valuable. Since 1964, this has lowered GDP growth by 50%, they say.
  • President Obama's Council of Economic Advisers Chair Jason Furman has called land-use regulation "a barrier to growth," writing, "Zoning regulations and other local barriers to housing development [can] allow a small number of individuals to capture the economic benefits of living in a community, thus limiting diversity and mobility."

Looking at San Francisco: Tough rules against building are an entrenched reality in America, as they are strongly supported by local homeowners wishing to preserve the character of their neighborhoods and high property values. But the tide may be beginning to shift in some cities. In San Francisco, for instance, one of the most expensive cities for housing in the country, the co-founder of the YIMBY party, which stands for "yes in my backyard", and advocates for housing development, announced a run for city supervisor earlier this month.

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