It’s a clever theory. But it’s incomplete, because it suggests that the decline of mobility is a sign that modern workers are sorting themselves efficiently. But if labor markets were operating efficiently, workers would be moving to where their work was most valuable. Instead, the opposite is happening. People aren’t moving toward productivity. They’re moving toward cheap housing.
Can housing costs be blamed for the decline in geographic mobility? Yes, they can.
Between 1880 and 1980, people generally moved from poor states to rich states, seeking the best jobs. “The creation of a single automobile plant—Ford’s River Rouge complex, completed in 1928—boosted Michigan’s population by creating more than 100,000 workers,” as Tim Noah reported. Migration promoted geographical equality.
But today, not only are families moving less, but also they’re moving in the opposite direction, from rich areas to poorer areas, mainly because of housing costs.
Whereas the middle class used to move toward productivity and jobs, like the River Rouge complex, they’re now barricaded from the most productive places by housing costs. So they’re moving toward cheap housing, instead. Tighter land-use regulations in rich metros pushed up housing values, according to the Harvard economists Peter Ganong and Daniel Shoag. Expensive housing in productive metros priced out the middle class and created “segregation along economic dimensions, with limited access for most workers to America’s most productive cities,” they wrote.
In the larger picture, high migration rates used to be a force for national equality. Now, low migration rates, and the new direction of migration from rich to poorer states, are a force for geographical inequality.
Finally, the great sort of Americans has created a handful of startup hotbeds, where networks of entrepreneurs help each other start companies, while business dynamism in the rest of country has languished. Like smoking habits and fitness, entrepreneurship is a contagious behavior. “Exposing individuals to entrepreneurs may encourage them to start their own ventures,” the Kauffman Foundation, a nonprofit that studies entrepreneurship and education, concluded. People who know startup founders are more likely to found startups. What’s more, people who live in the richest parts of the country, like the northeast, are “more likely to know entrepreneurs overall than in other areas of the country.” Meanwhile, poorer people were less likely to say they knew entrepreneurs in the study.
This, too, is an inversion of old norms. Smaller counties used to lead the nation in the growth in new businesses even through the early 1990s. But this decade, small counties have lost businesses, while venture capital, the lifeblood of high-growth startups, clustered in a handful of metros. The Bay Area (including San Francisco and San Jose) accounts for about 40 percent of all venture investments. Including New York, Boston, and Los Angeles, four regions account for two-thirds of all VC funding.