We hear a lot about income inequality between the richest and poorest Americans, but what about inequality between the richest and poorest states? The gap is big there, too, with well-heeled Connecticuters earning close to twice as much on average as folks down in Mississippi.
Regional income disparities may not be surprising, but to economists they pose a riddle. They point to a widely accepted theory in their field called “convergence,” which says that over time the economic fortunes of richer and poorer places should tend to equalize—the way, for example, China is catching up with the United States—and wonder why over the last 30 years that hasn’t happened across the 50 states. In a new study two Harvard researchers propose an answer that implicates a surprising culprit: residential zoning laws.
For most of the 20th-century convergence—or the “catch-up effect”—did in fact describe economic relations between American states. In their paper, which is detailed in the latest issue of Harvard Magazine, Daniel Shoag and Peter Ganong show that from 1880 to 1980 the poorest American states had the highest rates of economic growth. In 1940, for example, per capita income in Connecticut was 4.37 times larger than per capita income in Mississippi but by 1960 the ratio had fallen to 2.28 and by 1980 to 1.76. Convergence theory says the trend should have continued but beginning in 1980 it stalled, such that Connecticut and Mississippi are no closer together economically today than they were 30 years ago.
To understand how zoning laws may have contributed to this stasis you need to understand the factors that propelled convergence in the first place. During the 100 years of high convergence, Americans moved in droves from poorer states to richer states in search of higher wages (just like immigrants move from poorer countries to the United States). As more people crowded into richer states, average wages there began to fall in response to the relative oversupply of workers; meanwhile wages in the poorer states began to rise for the relatively few workers who remained behind, creating a kind of economic balancing effect between American regions.
Theoretically this process should have continued until Mississippi and Connecticut were more or less equally desirable places to work and Shoag and Ganong propose a three-step explanation why it did not: Convergence stopped because labor migration stopped; labor migration stopped because housing prices in the richest states grew so out of whack that low-skilled workers could no longer afford to move in; and housing prices skyrocketed in response to zoning laws written in the 1970s that artificially restricted the amount and type of housing that could be built in richer locales.
In the last couple years zoning regulations—and the skewed housing market they create—have emerged as a bogeyman, blamed for a lot of our country’s structural inequalities and economic sluggishness. Three different books—“Triumph of the City” by Harvard economist Edward Glaeser, “The Rent is Too Damn High” by Slate columnist Matthew Yglesias, and “The Gated City” by Ryan Avent of The Economist—have all argued along the same lines as Shoag and Ganong, that local zoning laws inflate housing prices, restrict where people can move, and end up crimping our country’s overall economic potential.
For a good overview of how zoning decisions affect economic growth, check out this op-ed by Edward Glaeser published in the Globe last September.
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Leon Neyfakh is the staff writer for Ideas. Amanda Katz is the deputy Ideas editor. Stephen Heuser is the Ideas editor.
Guest blogger Simon Waxman is Managing Editor of Boston Review and has written for WBUR, Alternet, McSweeney's, Jacobin, and others.
Guest blogger Elizabeth Manus is a writer living in New York City. She has been a book review editor at the Boston Phoenix, and a columnist for The New York Observer and Metro.
Guest blogger Sarah Laskow is a freelance writer and editor in New York City. She edits Smithsonian's SmartNews blog and has contributed to Salon, Good, The American Prospect, Bloomberg News, and other publications.
Guest blogger Joshua Glenn is a Boston-based writer, publisher, and freelance semiotician. He was the original Brainiac blogger, and is currently editor of the blog HiLobrow, publisher of a series of Radium Age science fiction novels, and co-author/co-editor of several books, including the story collection "Significant Objects" and the kids' field guide to life "Unbored."
Guest blogger Ruth Graham is a freelance journalist in New Hampshire, and a frequent Ideas contributor. She is a former features editor for the New York Sun, and has written for publications including Slate and the Wall Street Journal.
Joshua Rothman is a graduate student and Teaching Fellow in the Harvard English department, and an Instructor in Public Policy at the Harvard Kennedy School of Government. He teaches novels and political writing.