Why Has Regional Income Convergence in the U.S. Declined?
>The past thirty years have seen a dramatic decline in the rate of income convergence across states and in population flows to wealthy places. These changes coincide with (1) an increase in housing prices in productive areas, (2) a divergence in the skill-specific returns to living in those places, and (3) a redirection of unskilled migration away from productive places. We develop a model in which rising housing prices in wealthy areas deter unskilled migration and slow income convergence. Using a new panel measure of housing supply regulations, we demonstrate the importance of this channel in the data. Income convergence continues in less-regulated places, while it has mostly stopped in places with more regulation.
Extremely simplified: residents use democracy (in the form of zoning regulations) to vote out people they don't like. This effectively forbids the construction of affordable housing.
The demand is there, but the supply is not allowed to meet it.
Local communities decide what sort of housing they will contain, how much of it to permit, and in some cases the price it will go for, along with the income ranges for eligible buyers/renters. Their interests are maintenance of status-quo or lower levels of crowding and traffic, deterrence of gentrification in renter communities, and boosting home values in owner communities.
Tech companies decide what products to build, who to sell them to, how much to sell them for, and how many people to hire.
If the Palo Alto city council planned Facebook.com the way it plans housing adjacent to the Facebook campus, they might grow at more similar paces.
Why Has Regional Income Convergence in the U.S. Declined?
>The past thirty years have seen a dramatic decline in the rate of income convergence across states and in population flows to wealthy places. These changes coincide with (1) an increase in housing prices in productive areas, (2) a divergence in the skill-specific returns to living in those places, and (3) a redirection of unskilled migration away from productive places. We develop a model in which rising housing prices in wealthy areas deter unskilled migration and slow income convergence. Using a new panel measure of housing supply regulations, we demonstrate the importance of this channel in the data. Income convergence continues in less-regulated places, while it has mostly stopped in places with more regulation.