People who live in declining areas are more likely to have been born nearby, which implies that they have idiosyncratic ties to where they live. Labor demand shocks to places where people have higher levels of these local ties, proxied by their birth places, lead to less migration and larger movements into and out of the labor market. A model of spatial equilibrium that includes a distribution of workers' preferences for living in their birth places matches these facts and suggests further implications. Declines in local productivity lead to lower migration elasticities, and larger declines in real wages after further declines in productivity. Population can take generations to adjust, since ties can only be reallocated slowly. Across a wide class of models, lower migration elasticities make subsidies to local areas more efficient, since they change fewer people's locations. Local subsidies are more efficient in declining areas, where they are the most common.
Young adults, ages 25 to 35, who live in the same neighborhoods as their parents experience stronger earnings recoveries after a job displacement than those who live farther away. This result is driven by smaller on-impact wage reductions and sharper recoveries in both hours and wages, and is concentrated among workers with children. We find that geographic mobility, different job search durations, housing transfers, and ex-ante differences between workers are unlikely explanations. Our findings are consistent with a framework where some workers living near their parents face a better wage-offer distribution, though we find weak evidence of parental network effects.
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.