If someone lives in an economically depressed place, they were probably born there. And the presence of people who have local ties — a preference to live in one’s birth place — leads to smaller migration responses to wage changes in depressed places. Smaller migration responses lead to lower equilibrium real wages and make real wages more sensitive to demand shocks, a form of hysteresis. And local ties can persist for generations. Place-based policies also cause smaller distortions in depressed places since few wish to move there. Conversely, place-based policies that target newly productive places increase aggregate productivity, since they induce large migration responses.
The earnings of young adults who live in the same neighborhoods as their parents completely recover after a job displacement, unlike the earnings of young adults who live farther away, which permanently decline. Nearby workers appear to benefit from help with childcare since grandmothers are less likely to be employed after their child's job displacement and since the earnings benefits are concentrated among young adults who have children. The result also suggests that parental employment networks improve earnings. Differences in job search durations, transfers of housing services, and geographic mobility, however, are too small to explain the result.
Formerly: Family Ties and Worker Displacement
Inequality in U.S. housing prices and rents both declined in the mid-20th century, even as home-ownership rates rose. Subsequently, housing-price inequality has risen to pre-War levels, while rent inequality has risen less. Combining both measures, we see inequality in housing consumption equivalents mirroring patterns in income across both space and time, according to an income elasticity of housing demand just below one. These patterns occur mainly within cities, and are not explained by observed changes in dwelling characteristics or locations. Instead, recent increases in housing inequality are driven most by changes in the relative value of locations, seen especially through land.