LENS Business, Law and Policy

Boxed In

Changes in Migration Patterns and Income Levels Imperil Upward Mobility

Fewer Americans are moving across state lines in search of higher wages, according to economist Daniel Shoag, PhD. And that's a problem.

Shoag, an associate professor at Harvard University's John F. Kennedy School of Government, spent this school year as a visiting professor at the Weatherhead School of Management and has uncovered a troubling relationship between migration patterns and income disparities.

For more than 100 years, Shoag explained, incomes rose more quickly in poorer states than in wealthier ones, steadily narrowing the gap between the states. People also tended to move from states with low wages to states with higher ones, hoping to climb the economic ladder.

But those trends have weakened significantly during the past few decades, throwing a wrench in the cogs of the American dream.

In a paper published in the Journal of Urban Economics, Shoag and Peter Ganong, PhD, a colleague at the University of Chicago, found that for the first time since at least the Civil War, reduced migration actually caused income convergence to drastically slow.

They also showed that skyrocketing housing costs in high-wage areas caused the decrease in migration.

A janitor and a lawyer in the Deep South, for example, both could earn more in New York City. But expensive housing would offset the janitor's increased wages, while the lawyer still would come out ahead. That calculus has made high-wage cities magnets for highly paid workers, while pricing out low-earning ones.

Shoag attributed inflated costs to land-use regulations that limit housing supply. And by short-circuiting historical patterns of migration and income convergence, he said, such regulations are fueling income inequality. (Shoag and Lauren Russell, a Harvard PhD student, also recently demonstrated that fertility rates are falling in cities with the most restrictive land-use policies, as exorbitant housing costs cause couples to delay or forgo having children.)

Easing regulations won't be simple, because land-use policy tends to be set at state and local levels.

"There used to be two paths to improving your situation: education and moving for a better job," said Shoag. "Now one's shut off."

—Alexander Gelfand