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

August 28, 2012

Why Has Regional Income Convergence in the U.S. Stopped?
Source: Social Science Research Network

The past thirty years have seen a dramatic decrease in the rate of income convergence across states and in population flows to wealthy places. We develop a model where migration drives convergence and its disappearance. The model predicts that increases in housing prices in rich areas generate (1) a divergence in the skill-specific returns to productive places, (2) a redirection of low-skilled migration, (3) diminished human capital convergence, and (4) continued convergence among places with unconstrained housing supply. Using a new panel measure of housing-supply regulations, we confirm these predictions and the role of housing in the end of convergence.

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Categories: business and economics, housing and real estate, labor, salaries and wages, social and cultural issues, Social Science Research Network
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