“I believe that each of us who has his place to make should go where men are wanted, and where employment is not bestowed as alms,” advised New York Tribune editor Horace Greeley in a famous 1871 letter. “Of course, I say to all who are in want of work, Go West!” Basically, Greeley was telling Americans to pick up and go to where the jobs and opportunities are.
Americans were once more willing to heed Greeley’s advice. From the end of World War II through the 1980s, the Census Bureau reports, about 20 percent of Americans changed their residences annually, with more than 3 percent moving to a different state each year. Now more are staying home. In November, the Census Bureau reported that Americans were moving at historically low rates: Only 11.2 percent moved in 2015, and just 1.5 percent moved to a different state. Yet many of the places where people are stuck offer few opportunities.
Why have we become homebodies? In a draft article called “Stuck in Place,” Yale law professor David Schleicher blames bad public policy. Schleicher argues that more Americans are stuck in places with few good jobs and little opportunity, largely because “governments, mostly at the state and local levels, have created a huge number of legal barriers to inter-state mobility.”
To get a handle on the mobility slow-down, Schleicher identifies and analyzes the policies that limit people’s ability to enter job-rich markets and exit job-poor ones. He also describes how economically declining cities get caught in a policy spiral of fiscal and physical ruin that ultimately discourages labor mobility. The effects of lower labor mobility, he argues, include less effective monetary policy, significantly reduced economic output and growth, and rising inequality.
Consider monetary policy. A dollar doesn’t buy the same amounts of goods and services across the country. In a sense there are New York dollars, Ohio dollars, Mississippi dollars, California dollars, and so on. Think of what a worker earning the average household income of $30,000 in economically depressed Youngstown, Ohio, would need to have the same standard of living in other more prosperous regions of the country. In San Francisco, according to CNN’s cost of living calculator, a Youngstown job seeker would need an annual salary of more than $63,000. (San Francisco’s housing, groceries, transportation, and health care are 366, 56, 34, and 42 percent higher than Youngstown’s, respectively.) In Manhattan, he’d need nearly $82,000.
The median household income in San Francisco is around $84,000, up in real dollars from $59,000 in 1995. Economic theory suggests that this income differential should be bid down considerably as folks from declining areas like Youngstown move to economically vibrant centers such as San Francisco, but that is not happening. The per capita GDP among the states was converging before the 1970s, as people moved from poor states for more lucrative opportunities in richer states. That process has stopped.
Why? First, lots of job-rich areas have erected barriers that keep job-seekers from other regions out. The two biggest barriers are land use and occupational licensing restrictions. Prior to the 1980s, strict zoning limitations were mostly confined to rich suburbs and did not appreciably check housing construction in most metropolitan areas. But now many prosperous areas in the United States require specific lot sizes, zone out manufactured and rental housing, perversely limit new rental housing construction by establishing rent control, or set up “historic districts” that limit the changes that owners can make to their houses. Land-use restrictions limit construction to boost housing and rental prices to the benefit current property owners who vote for local officials who support restrictive policies.
How much of a barrier to movement are such land-use restrictions? Since 1996 San Francisco’s housing stock rose by 12 percent while the price of housing rose by around 340 percent, according to the Case-Shiller home price index. According to the Trulia real estate market analysis, the median house price in San Francisco is $1.2 million, with a median rent of $4,100 a month; in Youngstown it’s $93,000, with a median rent of $650. In other words, a Youngstown worker who sold his home for full price would receive enough money to rent a place in San Francisco for 22 months. (It’s worth noting that the population of Youngstown has dropped from 168,000 in 1950 to under 65,000 today, while San Francisco’s has increased from 775,000 in 1950 to 885,000 now.)
By keeping workers out of high-productivity regions, local restrictions on housing have lowered U.S. GDP by 13.5 percent of what it would otherwise be, according to a 2015 study by the Berkeley economist Enrico Moretti and the University of Chicago economist Chang-Tai Hseih. In fact, they find that “most of the loss was likely caused by increased constraints to housing supply in high productivity cities like New York, San Francisco and San Jose. Lowering regulatory constraints in these cities to the level of the median city would expand their work force and increase U.S. GDP by 9.5%.”
Meanwhile, professional licensing requirements have proliferated. Since 1950, state-level licensure has increased from 5 to 23 percent of the workforce. Schleicher notes that more than 1,100 occupations require licensing in at least one state, but fewer than 60 are regulated in all states. A 2015 White House report on occupational licensing found that “interstate migration rates for workers in the most licensed occupations are lower by an amount equal to nearly 15 percent of the average migration rate compared to those in the least licensed occupations.”
While land-use and licensing restrictions makes it hard to enter booming job markets, public sector employment, welfare benefits, and homeownership make it harder to exit regions with waning economic opportunities. The nearly 13 percent of Americans who work for state and local governments rely on defined-benefit pension plans that are not easily transferable across state lines. Picking up to take a job in another state would significantly reduce a public employee’s retirement benefits. Differences in state eligibility requirements for various poverty relief programs—e.g., food stamps, Medicaid, and Temporary Assistance to Needy Families—also discourage poor people from seeking opportunities elsewhere.
And homeownership rates correlate with higher regional unemployment and lower inter-state mobility. Mobility may be lessened due to the hassle of selling a house. Another possible effect is that homeownership might hold back development in an area through zoning restrictions that are detrimental to new jobs and entrepreneurial ventures. Of course, the federal mortgage interest deduction is a huge incentive encouraging homeownership.
Schleicher identifies city “shrinkage” as another restraint on labor mobility. How do you reduce the physical and governmental sizes of cities that are undergoing economic decline? Cities, especially those built around on manufacturing industries, developed chiefly as a way to minimize shipping costs—e.g., tire manufacturers wanted to be near auto assembly plants. Cities also offer the advantages of deep skilled-labor markets and information spillovers from neighboring enterprises. But mechanization, declining transportation costs, and trade competition have hollowed out many manufacturing cities, and so they need to shrink both their building stocks and the size of their governments.
Cities like Detroit, argues Schleicher, get caught a negative fiscal spiral. Negative economic shocks lead to greater demand for government services rise, which leads to an increase in property and income tax rates, which motivates the remaining businesses and workers to leave. Another economically destructive dynamic frequently kicks in. “Difficulties in reducing government services worsen over time in shrinking cities,” observes Schleicher. “As private-sector workers leave, particular populations—net recipients of public services, public sector workers, pensioners—become more powerful in local politics, giving them power to save benefits from declining.”
As the spiral of decline worsens, federal and state governments often step in with bailouts. Schleicher points out that, in general, such place-based subsidies ultimately encourage people to stay in declining places. “It is not clear why the country as a whole or a state in particular should want residents to remain in, say, Atlantic City rather than move to the New York City suburbs, which would give them access to a better labor market,” he observes.
Schleicher cites one of the odder contentions for place-based subsidies, made by the Stanford law professor Michelle Wilde Anderson. If Oregon taxpayers subsidize public services in economically declining rural areas of the state, Anderson argues, the country people will stay put and be an inspiration to city dwellers. “In my view, historic places and modes of living have existence value, even when they have trouble attracting residents and businesses in a competitive system,” she writes. “Just as there is existence value to the forest ecosystems themselves – humankind made spiritually and morally more whole through the existence of households and environments beyond the hustle bustle of urban materialism.” Basically, stay on the farm and in small towns in order to gratify urban fantasies about how hardy country folk live.
So what policies does Schleicher suggest be adopted as a way to boost labor mobility? Frankly, he hasn’t got much to offer. Loosening land and licensing restrictions would help a lot, but as Schleicher acknowledges, officials (and residents) in booming areas have very little incentive to make such changes. Nor do those in declining areas have much motivation to avoid the fiscal downward spiral Schleicher identified.
Still, Schleicher suggests that the federal government might suspend the mortgage interest deduction for cities that don’t allow sufficient housing construction. (Most economists are against privileging homeownership over other investments, and would argue for eliminating the deduction altogether.) Schleicher also suggests that the feds provide incentives to relocate. For example, Congress could increase the amount of the Earned Income Tax Credit for taxpayers who relocate to a new state or move a certain number of miles to take a new job.
Such remedies aren’t strong enough to alleviate the ailments that Schleicher has diagnosed. Nevertheless, identifying the maladies is the first step toward finding a cure. “Politicians should consider pushing for reforms that will break down geographic barriers to opportunity,” Schleicher concludes. “Doing so will not only make the country richer but it would also aid the political goal of forging one economy and people from our many regions and groups.”
For more background see my Reason January feature article “Stuck” on my visit to McDowell County, WV which is one of the poorest counties in America.