Hi. Thanks so much.
My name is Dan Shoag. I'm an economics professor at Harvard—recently promoted to Karen's friend—and I teach urban economics and econometrics.
This is my first time in Saint John. I'm honoured to be here today to talk to you about my research on the housing market, migration, and inequality. What I am going to have to say is a much more macro picture than some of the talks, so I hope it's useful. My research focus is on the U.S., so I'll begin by speaking about the American experience, but I think there are important lessons for Canada. I'll conclude by discussing some of my initial investigation of the Canadian data for this purpose.
This research project actually began as a failed attempt to create a homework assignment for my students. There's a famous relationship in urban economics called “income convergence”, which is a fancy way of saying that poor places tend to catch up to rich ones in terms of income per capita, and they do this by experiencing faster income growth.
I know it's weird today to think about poor places like Alabama and Mississippi having the fastest income growth, but that was true. It was actually true for over a century, starting when we first had data after the Civil War.
The assignment was going to be to ask my students to demonstrate this catch-up, the fact that poor places are catching up to rich ones, in the last 20 to 30 years of data. Thankfully, I tried my own homework first, which doesn't always happen. It's good that I did in this case, because that relationship has gone away. In the last couple of decades, poor places are no longer catching up to rich ones. Regional inequality, which had been falling for over a century, has basically been frozen in the last two decades.
The second question on the homework was to ask some students to demonstrate another one of these canonical relationships, which is just showing that people move from lower-wage places to higher-wage places. That seems intuitive. People should move towards higher wages. Again, that's something that had been true for as long as we had data. However, again, like income convergence or catch-up, this directed migration towards higher wages has pretty much stopped in the last few decades. Instead of people moving towards richer places like Connecticut or New York, Americans are now moving to mid-wage places like Florida, Texas, or Utah. That's a big change in the way migration had worked in the U.S.
These two canonical relationships that had existed for a century, this catch-up in regional income and people moving towards higher-wage places, have both fallen apart in the last 20 to 30 years. The timing is not a coincidence. Migration has a big impact on income growth and inequality. It allows people to move to opportunities, people who have poor local opportunities to find jobs in higher-wage places. It reduces labour market slack in labour markets where there are few jobs. Therefore, it makes sense that a decline in migration could have effects on catch-up.
Having failed to generate a productive homework, though, I now had to figure out why migration patterns have changed so much. The answer that jumps out at you is the data, and I think the reason that I am here is that it's housing. There's been a dramatic change in housing markets in America's richest cities in the last few decades at the same time that these patterns have reversed.
It's always been the case that rich places are more expensive than poor ones. That's not surprising. I once gave a disastrous interview with a journalist who summarized my work as Harvard professor finds that New York is more expensive than Alabama.