Stuck! the Law and Economics of Residential Stagnation

By Schleicher, David | The Yale Law Journal, October 2017 | Go to article overview

Stuck! the Law and Economics of Residential Stagnation


Schleicher, David, The Yale Law Journal


INTRODUCTION: AMERICA'S STICKY INTERNAL LABOR MARKET

Leaving one's home in search of a better life is, perhaps, the most classic of all American stories. We fled England in pursuit of freedom from religious persecution by the British. We moved north in the Great Migration. (1) "Go West, young man," we were told, "and grow with the country." (2) Federal programs allow us to "move to opportunity." (3)

But today, the number of Americans who leave home for new opportunities is in decline. A series of studies shows that the interstate (4) migration rate has fallen substantially since the 1980s. (5) Americans now move less often than Canadians, and no more than Finns or Danes. (6) Even the most prominent study finding no general decline in mobility does observe that mobility rates are lower among disadvantaged groups and that mobility has not increased despite becoming "more important" to individual economic advancement. (7)

More troubling still, Americans are no longer moving from poor regions to rich ones. This observation captures two trends in declining mobility. First, fewer Americans are moving away from geographic areas of low economic opportunity. David Autor, David Dorn, and their colleagues have studied declining regions that lost manufacturing jobs due to shocks created by Chinese import competition. Traditionally, such shocks would be expected to generate temporary spikes in unemployment rates, which would then subside as unemployed people left the area to find new jobs. But these studies found that unemployment rates and average wage reductions persisted over time. (8) Americans, especially those who are non-college educated, (9) are choosing to stay in areas hit by negative economic shocks. There is a long history of localized shocks generating interstate mobility in the United States; today, however, economists at the International Monetary Fund note that "following the same negative shock to labor demand, affected workers have more and more tended to either drop out of the labor force or remain unemployed instead of relocating." (10)

Second, lower-skilled workers are not moving to high-wage cities and regions. Bankers and technologists continue to move from Mississippi or Arkansas to New York or Silicon Valley, but few janitors make similar moves, despite the higher nominal wages on offer in rich regions for all types of jobs. As a result, local economic booms no longer create boomtowns. Economically successful regions like Silicon Valley, San Francisco, New York, and Boston have seen only slow population growth over the last twenty-five years. (11) Inequality between states has become entrenched. Peter Ganong and Daniel Shoag have shown that a hundred-year trend of "convergence" between the richest and poorest states in per-capita state Gross Domestic Product (GDP) slowed in the 1980s and now has effectively come to a halt. (12)

This Article will make two claims. First, it will argue that the stickiness of America's internal labor market is a fundamental macroeconomic problem that influences the quality of monetary policy, overall economic output and growth, and the efficacy of federal safety net spending. While there is no way to determine an optimal rate of interstate migration, important federal policies--like the use of a single currency and cooperative federalist social welfare programs--rely on a substantial amount of interstate labor mobility to function. (13) Further, empirical estimates show that increasing interstate migration rates, and particularly moves to rich regions, would substantially increase economic activity and welfare. (14)

Second, the Article will show that state and local (and a few federal) laws and policies have created substantial barriers to interstate mobility, particularly for lower-income Americans. Land-use laws and occupational licensing regimes limit entry into local and state labor markets. Differing eligibility standards for public benefits, public employee pensions, homeownership tax subsidies, state and local tax laws, and even basic property law doctrines inhibit exit from low-opportunity states and cities. …

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