Someone who lives in an economically depressed place was probably born there. And having workers with local ties – who prefer to live in their birthplaces – leads to smaller migration responses in depressed places. Smaller migration responses lead to lower real incomes and make incomes more volatile, a form of hysteresis. Local ties can also persist for generations. Additionally, subsidies to economically depressed places cause smaller distortions, since few people want to move to depressed places. Finally, subsidies to productive places increase aggregate productivity, since they induce more migration.
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.
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