January 14, 2016

Wagon trail

The original wage migrants. Credit: Marion Doss / Flickr Creative Commons

Americans move to cities that offer the highest wages. At least, they have for more than a 100 years.

But data now shows that this century-old pattern stopped about 30 years ago.

According to a paper by Peter Ganong and Daniel Shoag, Americans have stopped moving to high-wage places like Massachusetts; instead, they’re increasingly drawn to mid-wage places like Utah.

This is, to put it mildly, a major change in the country’s trajectory. Ever since the 1880s – since there have been records of migration – Americans have moved to places where they get paid more. Now, that gap is no longer being closed.

“This process whereby people move to places that offer them higher wages and poorer places, as a result, catch up to richer ones, is a big contributor to declining inequality,” says Shoag. “…Now only people with higher education move to places that offer high-wage differentials… this is an importer contributor [to inequality].”

What precipitated such a dramatic shift?

In Shoag’s opinion, there’s one big answer: housing prices.

Wealthy cities may offer higher wages, but the cost of buying a house or renting an apartment is even higher. (If you’ve ever compared the apartment market in San Francisco to anywhere else in the country, you’ve probably noticed this.) And housing costs hurt the poor disproportionately.

A janitor in New York might make more than a janitor in Mississippi, but housing costs are so much higher in New York that earning a premium for working there generally isn’t worth it to the janitor.

A doctor who lives in New York has to deal with a similarly tough housing market, but doctors have a great deal more disposable income, and, consequently, a lot more choices about where they live.

As for why housing prices have risen so drastically, Shoag says that cities haven't run out of space for new apartment buildings. Instead, the answer seems to be regulation. Developers in areas surrounding cities have been prevented from buildings that accommodate a lot of people and are close together. Because there aren’t enough apartments or houses near these high-wage cities, prices skyrocket.

This means that there are some cities where a large percentage of residents are relatively wealthy and educated, and other cities where the opposite is the case. The gap, unfortunately, does not seem to be closing.

Business, Kennedy School, Daniel Shoag, higher ed, Harvard

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