The Great Migration Breakdown

Historically, a source of American prosperity has been the willingness of workers to move from regions with poor economic prospects to regions with better economic prospects. Think Depression-era Okies fleeing the Dust Bowl to California. Think Jim Crow-era African-American sharecroppers migrating from the rural South to booming Northern industrial centers.

Since the 2008 recession, the rate of inter-state migration has slowed dramatically, observe Kyle F. Herkenoff, Lee E. Ohanian, and Edward C. Prescott in a new paper, “Tarnishing the Golden and Empire States: Land Use Restrictions and the U.S. Economic Slowdown,” published by the National Bureau of Economic Research.

Sluggish geographic labor mobility has coincided with three other trends: a spike in real estate prices in California and New York, an end to the population booms in California and New York, and a slowdown in the convergence in incomes between states. The authors think those trends are intertwined.

“U.S. economic growth has gone hand-in-hand with the regional reallocation of labor and capital,” write the authors. “The pace of resource allocation, however, has slowed. This decline has coincided with lower productivity and output growth, as well as growing home premia in high income states, including California and New York.”

Here is what they think is going on: Land use regulations create housing shortages, which drive up housing prices. Sky-high housing prices price lower-income residents out of the housing market in high-productivity metropolitan regions like San Francisco-San Jose and New York. Despite the superior work opportunities, people leave and people from lower-productivity regions are discouraged from moving in. Millions of Americans remain trapped in lower-productivity labor markets.

Herkenoff et al build an elaborate econometric model designed to gauge the effect of land-use regulations. (The model is way too complex to describe here — I’ll confess, the methodology is beyond my ken.) After running the numbers through their black box, here’s what they conclude:

Reforming land use regulations would generate substantial reallocation of labor and capital across U.S. regions, and would significantly increase investment, output, productivity, and welfare. The results indicate that too few people are located in the highly productive states of California and New York. In particular, we find that deregulating just California and New York back to their 1980 land-use regulation levels would raise aggregate productivity by as much as 7 percent and consumption by as much as 5 percent.

Deregulating all U.S. regions would raise labor productivity by 10% and consumption by 9%.

Under various deregulation scenarios, the authors noted that the “Mid-Atlantic” region, which includes Virginia, would, with California and New York, see the greatest population gains.

Bacon’s bottom line: This is an important paper. I firmly believe that the links described by Herkenoff et al are real — land use regulations restrict the housing supply, which drives up housing prices, which hinders geographic mobility, which hurts productivity gains and economic growth.

These linkages shed light on a two ongoing debates about American society.

Slowing rate of economic growth. Economic growth in the Obama business cycle was the slowest in the post-World War II era. The debate over the reasons for the slowdown has almost totally ignored the land use-housing shortage-migration connection. Economists look for national reasons — aging workforce, dearth of breakthrough technologies — to explain national economic phenomena such as national economic growth. Land use is a local phenomena, so it tends to be overlooked. If Herkenoff et al are right, it will be difficult for the U.S. economy to resume a 3% to 4% annual growth rate, no matter how Congress reforms taxes and the Trump administration prunes national-level regulations. (I’m not defending the status quo in taxes and regulation, just acknowledging that they address only a part of what ails the economy.)

Income inequality. The debate over income inequality in the U.S. has largely overlooked the malign effects of land use regulation. Insofar as incomes have become more unequal in the U.S. in recent decades — I think the extent has been exaggerated, but that’s another debate for another time — the slowdown in the migration of Americans from low-productivity (and low paying) regions to high-productivity (and high paying) regions has played a major role.

Land use is the most overlooked and least understood driver of the American economy. The influence of land use upon the economy is even more pervasive and complex than described in the Herkenoff et al econometric model. But their article is a good place to start the discussion.

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21 responses to “The Great Migration Breakdown

  1. I think that is part of it but I think education and “roots” are as big or bigger.

    People who live in rural areas these days KNOW that they have inferior educations unsuited to the 21st century economy and they KNOW that they will not fare well in the job market in the urban areas…

    They want their old mining and manufacturing jobs back that were fine with just a minimal high school education.

    Second – many own land and a house… and as Hank Williams Jr. counseled.. “a country boy can survive”..

    Third – entitlements… yep… if a Country boy has a double-wide and can hunt … have a garden and get a few bucks from Social Security Disability, TANF and Medicaid… he can survive and going to the big city means becoming a laborer and living in a a low-income enclave where their kids will go to some probably not so good school.

    Back in the good old Jim Crow South days.. folks had nothing to keep them there.. and myriad good reasons to go. Ditto with the dust-bowl midwest… once the crops were gone and the bank took your land -you had nothing to lose.

    It ain’t that way no more.

  2. Or, Jim, if the paper from Queensland University that I sent you is correct, much of the costs of land use regulation flows back to the landowners in the form of lower sales prices.

    • It used to be back in the 1970 and 1980s in close in DC region, if you hit the cycle right with your starter home you could ride the escalator up higher and higher for decades, trading up again and again in part because of suddenly very restrictive zoning imposed on the area for a variety of reasons but in far too many cases the housing stock will suddenly locked down the abrupt rise of NIMBYISM, an unfortunate spin off from the suddenly hyper active environmentalist movement.

      So for example in NW DC and and nearby Md. suburbs the housing stock couldn’t be expanded along Wisconsin Ave with rentals and condos like had happened on its sister Connecticut Ave. several times over several different generations. The result is a seemingly intractable tragedy that has been going on now for nearly 50 years, but could easily have been avoided.

      Of course, too, the problems of jammed up housing stock compounds as demand is forced to ripple out into the hinterland of spreading sprawl the now is often obsolete, and declining in value, stewing itself into sick neighborhoods.

      • Also too:

        Likely big differences today from the late 2oth century is that

        1/ these problems now are far more difficult to overcome, given the lack of vacant land available for development anywhere close enough for commuting to where the good jobs are, and,

        2/ the much greater and increasing divergence in pay between the young affluent kids with the right graduate degree from the right university, and everyone else out in the job market.

        3. This pay divergence, and housing cost divide is magnified too because so many employers, including colleges and universities, hire mostly only short term contract workers, whether maintenance men or PhDs. So income is highly unstable.

  3. “Bacon’s bottom line: This is an important paper. I firmly believe that the links described by Herkenoff et al are real …”

    Boy, Jim, are you ever right about the importance of this paper, and the ground on which it stands!

    Pause, relax, kick back and consider the number of people – whether single, married, with family or not – who cannot move to where the action is (good jobs in dynamic places with growing local economies) because, however willing, these workers are far too often locked into a dying or stagnant place simply because they cannot afford to trade their existing home there for another in the thriving place they would otherwise relocate too.

    And the problem applies to homeowners and renters alike, and to many different types of people and family.

    For example, my wife and I brought our first starter home in Chevy Chase Md (Martin’s addition) in 1971 for $31,000. Out combined annual income was $11,000 a year for our first jobs, and we used a credit card for the down payment. We were typical. Our neighborhood was filled with newly wed young couples there to start brand new families. Nobody was rich, just young recent graduates who’d come in from somewhere far away to get a job they couldn’t get at home in the place they came from.

    Today the very same house would cost well over a million dollars. The buyers annual income would have to exceed well over $400,000, with a big down payment obviously. No doubt the people living in this neighborhood today are in a far different demographic that we were back in 1971.

  4. re: ” … we used a credit card for the down payment.”..

    good grief.. I did not know you could do that! we spent YEARS saving up our down payment… for our $18,000 house that is now worth 150K!

    But this “problem” is and has been a “problem” all across the US in many urbanizing areas from the get go.

    It boils down to what people on the lower tiers of education and employment can afford and whether that mythological free market will “provide” a right-priced alternative or whether government has to step in and get rid of all those nasty regulations that prevent affordable housing.

    The thing is – people are pretty creative in finding solutions… as TMT well knows.. they get a house and instead of 3 people living there – there are 15!

    Then the nearby aggrieved cry bloody murder and DEMAND that such despicable behavior be “outlawed”!

    Should the govt – MANDATE developers to produce “affordable housing” by getting rid of all those regulations that existing residents demanded?

    For instance, how many retired empty nesters could benefit from renting out the basement or upstairs and at the same time provide “affordable” housing?

    I bet even TMT would rent out some of his house to the “right” people for the “right” price, eh?

    • Where is the poorest Congressional district in the US? New York City. Not rural Mississippi, not some run down factory town in Ohio – NYC. So, when you say people can’t afford to live in urban areas but there’s a whole bunch of very poor people living in the Bronx I wonder. Are the people in that Congressional district living large? Are they put up in nice places? Oh hell no. I imagine it’s a hell hole (although the Bronx overall is much, much improved from its bottom in the 1970s and 1980s).

      Can a family of four making $24,600 per year live better in rural Virginia than the Bronx? I assume rural Virginia. But when the economy continues to shrink and the income of that rural Virginia family goes away, what should happen? In the Bronx you are just a short subway ride and $2.25 away from Manhattan where there’s a tone of opportunity to move up the employment ladder. Not so true in rural Virginia.

    • Nope, I would never rent out part of my house. When I was single, I rejected a number of offers from friends to be my roommate. That is, except for my future wife.

      At least in Fairfax County, we need rules enforced. More people mean more traffic since the County spent decades approving more density than the transportation networks could handle.

  5. Well, Congress is poised to end the deduction for local taxes on those pricey homes, and end or limit the deduction for mortgages on those pricey homes. Both have the industry screaming bloody murder because won’t both actually put downward pressure on prices? As to other approaches I really don’t see a successful move to end zoning, lot size requirements, code enforcement, density requirements, etc – the various regulatory props of housing prices.

  6. What was it Ronald Reagan said to Jimmy Carter in that debate? “There you go again …”

    I’ll admit that I haven’t had time to read the underlying article (I’ll try to do so this weekend). However, I assume Jim fairly and accurately summarized the key points so, here goes …

    Land use in “New York” and “California”. New York and California are whopping big places with vast difference from one area of the state to another. Does anybody really think that Buffalo has the same housing issues as Manhattan? Does anybody really think that Buffalo has the same job opportunity profile as Manhattan? Nobody moves to New York. They move to an apartment in the Alphabet neighborhood on Manhattan’s East Side. If we’re going to have this discussion let’s be specific.

    Land use in the East Village of Manhattan. I’ve been going to Manhattan so often and for so long I have to file and pay taxes in New York. When in Manhattan I spend most of my time in the East Village in an area that has become known as Silicon Alley. As far as I can see, this is exactly the kind of high density, small dwelling, multi-use, walkable, transit oriented area that Jim and his ilk have been pining for neigh these many years. Is it expensive? Oh hell yes. But the men and women who work at the bar in the hotel where I have been staying, off and on, for the past four years all live nearby. Funny thing about expensive places – they have to pay high salaries to attract people. And in the case of the bar staff, the hotel charges exorbitant prices to visiting businessmen like me and I tip as a percentage of the price.

    As for lacking a sufficient education to move to the big city … somehow the illegal immigrants / undocumented workers who sneak into the US with very limited educations and no practical ability to speak English somehow make it. Kind of odd that a natural born American construction laborer from outside Roanoke lacks the education and skills to move to Falls Church but an uneducated Salvadorian immigrant can make it just fine. I think Larry had it right – subsidized living in Hooterville is preferable to the inconvenience of moving to Herndon for a lot of people. Unless, of course, you’re from El Salvadore – where there is no subsidization. Hmmmm …. maybe that’s the problem.

    • Maybe if we stopped insulting and demonizing those immigrants with that strong work ethic some of them would vote Republican….

      • One of the big problems with illegal immigration is the cost to taxpayers.

        “The total cost of illegal immigration to federal, state and local taxpayers for the nation’s 12.5 million illegal aliens has increased to $116 billion annually, according to a new study released Wednesday by the Federation for American Immigration Reform (FAIR). The study, one of the most comprehensive to date on the issue, investigates the major contributing factors driving the high cost of illegal immigration, and compares that to the revenue state and local governments collect from illegal aliens.”

        The same study indicated same people pay $19 billion in federal, state and local taxpayers. http://thehill.com/blogs/congress-blog/homeland-security/352869-the-cost-of-illegal-immigration-to-taxpayers-is-growing

        The United States cannot afford to import poverty, even when many of the individuals are hard workers with good work ethics. And I agree that most of the Hispanics I’ve encountered over the last 20 years or so tend to be very good workers. But can we afford almost $100 billion annually to have cheap labor.

        There’s a split between those who benefit from cheap labor – the employers and taxpayers. That’s one reason why tax reform should include provisions that: 1) limit the FIT deduction for worker compensation to 1/2 the amount spent if the employer has not used E-Verify for such employer; and 2) limit the same deduction to 3/4 the amount spent for any worker who is not authorized to work in the United States. We could virtually eliminate government raids on people except for those who have criminal records or have a deportation order. IRS audits would take care of most of the problems. A company that used lots of unlawful workers without limiting its employee compensation deduction would soon be in tax fraud territory. And that’s how the Feds got Al Capone.

      • My observation is that they work their asses off. I am sure there are some who do not but most do. The problem is that the illegals / undocumenteds will take a starter job at well below the average for that job. However, they only settle in areas of opportunity and they will work up to average wage and beyond. I used to think this was unfair since non-legal citizens would take the jobs that citizens want. However, with respect to rural Virginia, I have changed my mind. The people in rural Virginia, by and large, will not come to where the jobs are. They’d rather live on the dole and cede the jobs to immigrants. Fine. The immigrants will soon join me in generating the surplus dollars that are sluiced to rural Virginia for schools, law enforcement, Social Security disablement, etc. Eventually the immigrants who worked their asses off will be as disgusted by the takers from RoVa as I am.

        • I agree about the problem with Americans not moving to a place where jobs are. But assuming illegal immigrants do, over time, move up the wage scale, even they are often cut back by more illegal immigrants who will work for less. Illegal labor will always reduce wages for lower-educated people.

          If construction companies don’t have to follow the law, why do we have to pay taxes? And what about the massive subsidies taxpayers fund?

          Control the borders; punish employers who hire people not authorized to work in the United States; make the FIT changes I previously discussed; make a business ineligible for government contracts if they are found to have hired unauthorized workers; allow the Dreamers to remain in the United States with legislation; end chain immigration except for children; clean up the visa overstays – maybe by offering a reward for information that results in deportation; allow people who have been here for say 10 years with no misdemeanor convictions who pay up their taxes over some reasonable period of time remain in the United States; change immigration laws to favor workers with needed skills and education.

  7. While land use might be a small part of the issue, I honestly think it’s vastly overrated when talking about housing.

    The real problems are incomes and homebuilders. Does anyone build starter homes any longer? What builder is building $100-150K, 1300-1600 sq. ft. single family homes?

    Without that element from the building community, you’re seeing prices go up across the board.

    New single family construction is for the affluent at this point. That’s why I think income divergence (top 25% are so, so far separated from the bottom 75% in terms of wealth/income) is the major problem. The bottom 75% just doesn’t produce profits for the builders.

    Land use isn’t causing income divergence.

  8. I respectfully disagree with how this discussion is trending, although I suspect this zoning problem is likely more legal and cultural problem at its base. But likely there are many ways to skin the cat. Perhaps some of our obsolete neighborhoods can refilled into Barcelona like urban areas if there is the will, and “otherwise filled or unavailable land, including too far away land now can likely can be unlocked, if old habits and ways of doing business can be broken for everyone’s advantage and profit. There’s much to explore I suspect. Remember where Courthouse to Ballston came from, a near dead urban area.

    • i.e. redevelopment with TIF … an existing option but it takes a developer interested in doing it and I don’t know if there is a shortage of developers or developers have choices and redevelopment is not as lucrative as other development.

      One presumes that as long as other development is going on that the rules must not be THAT onerous..or else very little or NO development would be occurring.

      I know down our way in Fredericksburg – the city takes more than it’s share of low-income, apartments but neither county is much interested in having their share built.

    • The difference between what Arlington did and what Fairfax County did was the former created a task force that had balance between developers and current residents. According to people who served on the Arlington task force, the members soon learned no one would get anything unless they worked together, compromised and addressed both side’s important issues.

      On the other hand, Gerry Connolly set up a task force for Tysons that was controlled by developers. Indeed, non-members were not even allowed to speak. Now Gerry, being the very smart guy he is, got the developers fund his run for Congress. Then, Sharon Bulova took over and the BoS took Tysons away from the task force and gave it to the Planning Commission. Other stakeholders were allowed to participate and, after a couple more years of work and battles, a compromise was reached. The plan was approved and implemented.

      However, a number of developers are starting to walk back their commitments, most especially on parks, open space, recreational facilities and other public amenities. Staff is becoming weak-kneed, and community distrust is growing. One developer, Dan Clemente, is trying to push through a 670 foot building that is largely inconsistent with the adopted plan and avoid providing any ground-level parks. He proposed to give money for Clemijontri Park on Georgetown Pike instead of provide in-Tysons recreation and to put all open space on top of building terraces. It’s so outrageous the staff is opposed.

      The County has also failed to enforce TDM requirements. It allows building owners to self survey. And despite what everyone agrees is increasing levels of traffic, all of the building owners have passed the TDM requirements. When people cannot trust builders to live up to their bargain, we need more regulation.

  9. re: ” Land use isn’t causing income divergence.”

    yup. But dense land use will yield more affordable housing that less dense and dense is not as profitable and typically has opposition and in the past, it has ended up as concentrated low-income “project” housing.

    “Kind of odd that a natural born American construction laborer from outside Roanoke lacks the education and skills to move to Falls Church but an uneducated Salvadorian immigrant can make it just fine. ”

    well.. there is some relativity here – A Salvadoran who lived in a hut is going to be living large in a cubbyhole in an American city – and that Salvadoran is probably well acquainted with squalor and crime where he came from.

    Native Americans expect a higher standard of living and rural folks typically are not affectionatoes of urban living on the margins and I still think as long as they can make ends meet in the country – they are loathe to leave for something called a “job” but a lifestyle that is not appealing.

    to continue on with Hank Williams song about Country Boys surviving:

    “… He used to send me pictures of the Broadway Nights
    and i would send him some homemade wine
    but he was killed by a man with a switchblade knife,
    for forty three dollars my friend lost his life.
    I’d love to spit some Beechnut in that dudes eyes
    and shoot him with my ole forty-five
    cause a country boy can survive, country folks can survive. ”

    so the moral to the Salvadoran fella is that he’ stepping up and the country boy from rural America is stepping down and as long as he gets “assistance” to stay put… country boys can survive…

    • But the Salvadorians tend to work their way up and after 10 – 15 years they are living a whole lot better than the cowboy who can only survive so long as there is the dole handing out other people’s money. No doubt that cowboy mumbles something about ferners takin’ all the jobs as he jogs out to his pickup truck to head to the Social Security office to see about an increase in the disability payment because of the degradation in his condition.

      • They’re from very different backgrounds with the Salvadoran having a virtually unlimited “up” outlook and the Cowboy on a down slide compared to other Americans.

        You’ve now have lurched into the territory that put Trump in office even though Trump is the last person in the world to be the friend of such cowboy “losers” – he and the GOP can get cowboys vote by demagoguing immigrants.

        just FYI – Social Security Disability is maxed out …and new signups are tougher and tougher. It’s not really “out of money” (no more than Social Security or Medicare Part A is) but it’s reached the limit of what the FICA tax generates in annual revenues to be allocated to Social Security Disability.

        Each of the three – Social Security, Medicare Part A and Social Security Disability have their own “share” of FICA tax revenues. They’re walled off from each other… each has it’s own allocation it cannot exceed. That’s why each of them have their own paths to “running out of money”

        if you take a gander at this reports – skip down to TRUST FUND OPERATIONS, 2016

        https://www.ssa.gov/OACT/TRSUM/index.html

        and you will see the four categories – the first 3 are funded from FICA , each with their own allocation and the fourth SMI – is Medicare Part A which the chart shows is NOT funded from FICA but instead from general revenues and premiums.

        At any rate DI is Disability it’s starting to dwindle so those “cowboys” will have to depend on other “assistance” which in Virginia is not so good because abled bodied folks are not eligible for MedicAid and TANF but parents with kids are – and therein lies another dilemma.

        And at the end of the day – when “cowboy” goes to the precinct to vote – what political party does he most often vote for?

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