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Why Has Regional Income Convergence in the U.S. Declined?

66 Pages Posted: 11 Jun 2012 Last revised: 8 Jun 2015

Peter Ganong

Harvard University

Daniel Shoag

Harvard University - Harvard Kennedy School (HKS)

Multiple version iconThere are 2 versions of this paper

Date Written: March 28, 2013

Abstract

The past thirty years have seen a dramatic decrease in the rate of income convergence across states and in population flows to wealthy places. These changes coincide with (1) an increase in housing prices in productive areas, (2) a divergence in the skill-specific real returns to living in productive places, (3) a redirection of low-skilled migration and (4) diminished human capital convergence due to migration. We develop a model where falling housing supply elasticity and endogenous labor mobility generates these patterns. Using a new panel measure of housing supply regulations, we demonstrate the importance of this channel. Income convergence continues in less-regulated places, while it has stopped in more-regulated places.

Keywords: Convergence, Regulation, Land Use, Migration, Housing Prices

JEL Classification: E24, J23, J24, R14, R23, R52

Suggested Citation

Ganong, Peter and Shoag, Daniel, Why Has Regional Income Convergence in the U.S. Declined? (March 28, 2013). HKS Working Paper No. RWP12-028. Available at SSRN: https://ssrn.com/abstract=2081216 or http://dx.doi.org/10.2139/ssrn.2081216

Peter Ganong (Contact Author)

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

Daniel Shoag

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

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