Highly educated people still relocate for work, but exorbitant housing costs in the best-paying cities make it difficult for anyone else to do so.
MERCED, California—Seccora Jaimes knows that she is not living in the land of opportunity. Her hometown has one of the highest unemployment rates in the nation, at 9.1 percent. Jaimes, 34, recently got laid off from the beauty school where she taught cosmetology, and hasn’t yet found another job. Her daughter, 17, wants the family to move to Los Angeles, so that she can attend one of the nation’s top police academies. Jaimes’s husband, who works in warehousing, would make much more money in Los Angeles, she told me. But one thing is stopping them: The cost of housing. “I don’t know if we could find a place out there that’s reasonable for us, that we could start any job and be okay,” she told me. Indeed, the average rent for a two-bedroom apartment in Merced, in California’s Central Valley, is $750. In Los Angeles, it’s $2,710.
America used to be a place where moving one’s family and one’s life in search of greater opportunities was common. During the Gold Rush, the Depression, and the postwar expansion West millions of Americans left their hometowns for places where they could earn more and provide a better life for their children. But mobility has fallen in recent years. While 3.6 percent of the population moved to a different state between 1952 and 1953, that number had fallen to 2.7 percent between 1992 and 1993, and to 1.5 percent between 2015 and 2016. (The share of people who move at all, even within the same county, has fallen too, from 20 percent in 1947 to 11.2 percent today.)
Of course, it wasn’t simply “moving” that mattered—it was that they moved to specific areas that were growing. When farming jobs were plentiful in the Midwest, for example, people moved there—in 1900, states including Iowa and Missouri were more populous than California. Black men who moved from to the North from the South earned at least 100 percent more than those who stayed, according to work by Leah Platt Boustan, an economist at Princeton. Additionally, for most of the 20th century, both janitors and lawyers could earn a lot more living in the tri-state area of New York, New Jersey, and Connecticut than they could living in the Deep South, so many people moved, according to Peter Ganong, an economist at the University of Chicago. With less labor supply in the regions that they left, wages would then increase there, and fall in the regions they were moving to, as the supply of workers increased. As a result, for more than 100 years, the average incomes of different regions were getting closer and closer together, something economists call regional income convergence. Wages in poorer cities were growing 1.4 percent faster than wages in richer cities for much of the 20th century, according to Elisa Giannnone, a post-doctoral fellow at Princeton.
But over the past 30 years, that regional income convergence has slowed. Economists say that is happening because net migration—the tendency of large numbers of people to move to a specific place—is waning, meaning that the supply of workers isn’t increasing fast enough in the rich areas to bring wages down, and isn’t falling fast enough in the poor areas to bring wages up. Why is this? Why have people stopped moving? The reason, economists believe, isn’t that there are the jobs or wages to entice people to move to economically vibrant cities like New York and San Francisco—there are—but that housing prices are so high there that they outweigh any gains people could make from the better wages. As a result, high-income cities are still appealing to many workers, but only highly skilled workers who can command salaries high enough to make it worthwhile to move. Low-income workers will end up spending much of their incomes on housing if they move, and so stay put.
This is the conclusion of Ganong and Daniel Shoag, a professor at Harvard and Case Western Reserve University, in a recent working paper. They find that though janitors still earn more in the tri-state area than in the Deep South, the move no longer presents an obvious opportunity because the costs of living in New York have gotten so high. Janitors in the New York area now spend on average 52 percent of their incomes on housing, the authors find, compared to lawyers, who spend just 21 percent of their incomes on rent. Their research finds that because of these factors, the migration patterns for low-income households are beginning to diverge from the migration patterns from high-income households for the first time in American history. High-skill workers are still moving to places that offer them high incomes, but now, low-skill workers are moving away from places where average wages are high.
This has enormous implications for the country as a whole, leading to a stratification of America, in which the wealthy and skilled live in certain amenity-rich cities and low-income people are increasingly stuck in places with few opportunities. “The American Dream is, at its core, that people who are looking for economic opportunity can pick up and move to that opportunity,” Ganong told me. “That is cast into doubt when places with economic opportunity also have crazy expensive housing.”
I spoke with a woman named Veronica Cantu, who recently left San Jose, where she made $26 an hour as a home health aide, for Merced, where her hourly wage was $10.65 until she lost her job in September. The differences in rent and quality of life made the move worth it despite the lower wages, she told me. Her family had been paying $1700 a month for a three-bedroom duplex in the town of Morgan Hill near Silicon Valley. In Merced, they’re paying $800 a month for a four-bedroom house. “For us, I guess, money wasn't the biggest thing to chase after,” she said, when explaining her motivation for leaving Silicon Valley behind.
Of course, high-income cities have always had higher housing prices than low-income areas. But prices in a handful of areas have gotten astronomically higher in recent decades, enough so that they offset the relatively higher wages they offer to low-skilled residents. Though historical Census data does not exist for home values at the city level, there is data showing growing disparities among states. Between 1940 and 1980, housing prices in California were, on average, just 35 percent higher than those in the rest of the country, even though millions of people were pouring into the state, according to another recent working paperby the economists Kyle Herkenhoff, Lee Ohanian, and Edward Prescott. By 1990, though, prices in California were 262 percent higher than those in the rest of the country.
What changed? According to Ganong, the reason is that certain cities have increased regulations on development, slowing the construction of new units. “It used to be when a lot of people move to places, we build more houses,” he said. “Now, we don't build more houses, and instead, poor people move out.” Ganong and Shoag find that places where the term “land use” has become more and more frequently used in state supreme and appellate court cases—an indication of when cities implement controversial new tactics to restrict construction, and those tactics are then litigated—are also those with the largest growth in housing prices.
These building restrictions are varied—they may increase the amount of time it takes to get a building permit, mandate that housing has space set aside for parking, or simply restrict the number of units that can be built on a certain parcel of land. They both make the cost of construction more expensive and restrict the number of units that can be built. These restrictions are a relatively recent phenomenon, the result of what Ed Glaeser, an economist at Harvard, calls a“property-rights revolution” since the 1960s in which homeowners increasingly oppose development in their neighborhoods, and pass regulations to limit growth.
These restrictions might not have mattered a few decades ago, when many cities across America had good job opportunities for people of all incomes. But the twin forces of globalization and automation have dramatically changed the mix of jobs available, concentrating economic growth in a handful of cities. Cities like New York, San Francisco, and San Jose, which have a large number of educated workers and innovative companies, have experienced the strongest growth in jobs and wages in recent decades. In 1979, the median wage in San Francisco was 30 percent higher than the median wage in Montgomery, Alabama, according to Census data. Today, it’s 104 percent higher. These dynamic cities tend to have certain sectors of extreme growth—say tech or media or finance—and those sectors spur growth throughout their economies. According to Enrico Moretti, a Berkeley economist, every new high-paying job in the “innovation sector,” as he calls it, creates five new jobs in other industries, many of which are for low-skilled workers. All workers do better off in these dynamic cities, Moretti says, but these places also happen to be the ones that have adopted the most restrictive land use policies, Moretti says. “What has changed is that the places that are now the engines of growth in terms of highly paying jobs are much less welcoming places,” he told me.
Texas shows that when places are affordable, people will move. The state has infamously eschewed zoning laws, and allows more building than states like California and New York. As a result, Texas added the most people in the nation between 2015 and 2016, nearly half a million, as cities like Austin and Dallas continue to grow.
Housing costs notwithstanding, there are reasons that people don’t move to high-opportunity areas. I talked to a woman in Merced named Mary Kelly who had worked as a certified nursing assistant in Eureka, California, where she said she could work a lot more hours than she could at home, and where she had free housing through her employer. She was earning good money, but she missed her daughters and grandchildren, and so decided to return home. People make their own choices about where they want to live and why. The problem is when high housing costs mean they can’t earn enough more in high-opportunity areas to make it worth it to leave behind family and friends.
This dynamic is bad for individual people—and for the economy as a whole. Certain regions are more productive than others, and contribute more to economic growth. The more people they can absorb, the greater the contribution to the gross domestic product (GDP) these cities can make. I talked to a man named Zach Morbeck, who moved to the San Francisco Bay area, where he makes $29 an hour working at a golf course, more than double the $14 an hour he made back home in Wisconsin. He’s already planning to buy a car and invest in his education with his extra wages, all things that will contribute to the economy. This is only possible because Morbeck pays about the same in rent as he paid in Wisconsin. He now lives with roommates, rather than living alone in a two-bedroom apartment, a tradeoff many people wouldn’t be willing to make.
High real estate prices in booming cities are also bad for businesses. When there are land regulations on residential land, there are usually regulations on commercial land too, which makes it cost-prohibitive for firms to set up new businesses or invest in commercial buildings or factories. It’s good for the economy if competing companies locate near each other—economists call it agglomeration, and find that those companies learn from each other, helping one another become more productive. Places like Silicon Valley and Massachusetts’ Route 128, for example, are known as tech corridors, and this reputation then attracts more similar companies there, and workers who are best-suited for their jobs. But businesses increasingly can’t afford to locate near these hotspots, and miss out on opportunity. If they move somewhere else, they may not be able to find the right set of workers in their new location, or may not be able to access the same supply chains. “When a state like California puts up a lot of regulations on land use, they’re depressing economic activity and jobs in the state,” Ohanian, a UCLA economics professor, told me. “But they’re not just shooting themselves in the foot, they’re shooting the country in the foot too.” He estimates that deregulating California and New York alone back to the land-use regulation levels of 1980 would increase nationwide productivity by 7 percent, and consumption by 5 percent. A separate paper by Moretti and Chang-Tai Hsieh of the University of Chicago found that lowering housing regulations in San Francisco, New York, and San Jose, to the level of regulation in the average U.S. city would increase GDP by 9.5 percent.
Were housing prices lower in California, it’s possible that many of the people displaced by automation and globalization in the Rust Belt and the South would be able to pick up and move for better opportunities. Calls for a new Homestead Act that would subsidize moving expenses for people who want to relocate from depressed areas to regions where there are jobs don’t take into account the high housing prices low-skilled workers will encounter even if they have help relocating.
The solution to reversing these trends, economists say, is clear: Build more housing in high-opportunity areas. Actually doing this is challenging, though. Some companies have taken it upon themselves to supply housing for their workforce; Google is spending $30 million on modular homes for some employees, for example. But individual efforts won’t make much of a dent in housing supply. Instead, cities need to reverse some of the most stringent regulations on development. This will be a difficult, if not impossible, task. Some states, like Massachusetts, have ordinances that allow developers to get around regulations in areas with small shares of affordable housing, as I’ve written about before, but implementing such a policy on a national level would be all but impossible. The problem is that current homeowners want prices to stay high so that they can sell for more than they bought. They’ll oppose the construction of new units and push back against changes to zoning. Through a variety of policies, including the mortgage interest deduction, America has long encouraged citizens to use housing as a place to store their wealth. It turns out that doing so may be detrimental for everyone else.
This article originally appeared in The Atlantic.