What happens when Americans stop moving: A short-read Q&A with David Schleicher

Americans are no longer moving. And that’s a problem for the economy, adversely affecting everything from productivity growth, to income inequality, to monetary policy. At least, that’s the argument of law professor David Schleicher, author of the recent Yale Law Journal article, “Stuck! The Law and Economics of Residential Stagnation,” an insightful study of how state and local governments are hindering labor market mobility, why that’s a problem, and what can be done about it.

Below is an abbreviated transcript of our conversation (find the entire transcript here). You can subscribe to this podcast on iTunes or Stitcher, or download the podcast on Ricochet.

The thesis of your article is that people are moving from place to place much less than they used to, and that’s a bad thing for the economy. What’s so bad about that?

It’s worse than people think. The ordinary story people tell is, well, this leads to unemployment if there are jobs in one place and not jobs in another. And that’s true, but the implications of this are actually a little bigger than people seem to say. I think the clearest is lost growth, right, so if people are not moving to the places where their services and skills are most valued, the economy will be less overall productive.

But as you know, it also makes monetary policy a lot worse. It’s a lot harder to set a single interest rate if there’s unemployment in one place and inflation in another. This is something we saw in Europe, we also have in the United States. And, similarly, we rely on mobility to make our federal system work. And this is I think a pretty not well-understood idea, but if poor people and rich people live in different states, in different localities, it’s very hard for local redistribution to work. . . .

And so in an ordinary and a freely moving economy, what you’d imagine is that this wouldn’t be that big a problem because where there are rich people there are going to be jobs, and then there are going to be poor people who follow them. But we’ve kind of limited that. This is big — we’ve built a broader government system and economic system around mobility, and then mobility declined.

What caused this?

There have been a lot of factors. There are some things that people call natural factors — so the fact that our economy is more service-based means that places are more similar to one another than a more manufacturing economy. A few other things — some people say that the internet means you don’t have to move and move back to learn about a place. You can just kind of look it up online. All these things could be true.

One major factor, though, is state and local policy. State and local policy is particularly a problem for this — the problem of people not moving to boom areas and not moving from declining ones. And, in the paper, I categorize them into two categories: limits on entry and limits on exit.

And so the big limits on entry I discuss are land use — this is probably the most well discussed. It’s been in the news. You talked about it with Brink Lindsey and Steve Teles a bit I know recently. If we don’t build houses in Silicon Valley, people can’t move there. What you see is prices go up rather than populations going up.

But also occupational licensing. The kind of heroic work of Morris Kleiner and others has shown that more than a quarter of all workers need licenses to work. People don’t move across state lines at the same rate as you’d expect, so moves in-state are much higher than moves across state in licensed industries compared to comparable unlicensed industries. And this makes it harder to move. If you want to be a lawyer in California, it’s hard to move there. You have to take a whole new bar again. It’s costly.

We also put limits on leaving. So if you’re a public worker, that’s 13% of the US economy, moving your pension is very difficult. You’re locked in until it vests. Moving public benefits can be really difficult. So if you’re a worker in Michigan and you want to move to Texas, there’s a law that you may lose your Medicaid. And you may lose your Medicaid because it is less generous in Texas, but you also may lose your Medicaid because just the paperwork is really difficult.

The fact that we subsidize homeownership so much limits mobility because you have to sell your house and there can be lock in. There are a whole variety of other policies that have the effect of making it costly to move.

What are the potential growth effects if we fix this problem? Are they bigger than the tax cut?

Much, much, much more important. I mean, it’s not even close. And so the interesting thing is that there are ways in which you can imagine they overstate the case, but there are also ways in which they understate the case. And so they’re looking at a level effect that basically if you move from Kansas City to San Francisco, how much more would you be paid, and they don’t factor in potential growth effects in terms of, you know, like would you become more creative because you’re now surrounded by Silicon Valley people. And there’s some evidence that you would, that that would have a real effect.

What’s your response to people who say we should be trying to save these declining regions and devoting resources there?

My answer is no, we shouldn’t be. Here’s the more sophisticated answer to that, which is that there are certainly values in staying put. First of all, we shouldn’t force anyone to move. We should remove limits on people moving and let them do as they please. There are public benefits created by long tenure and so they certainly exist. How big they are is subject to debate, but they certainly exist.

What I argue in the paper is that all of these benefits accrue at a local level and so we’d assume the local government will care about the local benefits of long-tenured residents. But local governments making the huge number of policies I talk about have no reason to care about the conduct of monetary policy. It’s just above their pay grade. It’s not what they’re concerned about.

And so while there are public benefits to staying put, those benefits are things that local governments are very well attuned to, in fact way over attuned to because long-tenured residents are also the only people who show up for local elections held on Tuesdays in April in an odd number year and the homeowners are the dominant force in local politics.

The result is that it’s not that there are no public benefits for individuals with long tenure, but rather that the system probably over-rates these benefits. And it structurally does that.

If you were advising people in Washington on US infrastructure policy, what would be your general advice?

I’d say two things. One would be they should focus infrastructure where there are people. And that seems straightforward enough, but too often in American policy we subsidize infrastructure either in an effort to revive places that are dying or, alternately, we do it due to political concerns. So we should focus spending where there are people and where there could be growth added by the construction of new infrastructure.

The second thing is they should do a lot of research and efforts to focus on cost. So I’ve been working on a project looking at the comparative cost of building subways. And it turns out building subways in the United States, and this is true across the United States although most dramatically in New York City, are orders of magnitude higher than they are in London and Paris. And that’s weird. And no one really knows why, and so people have theories about why, there’s some stories about why, but as a kind of a structural matter, no one has a very clear beat on why this is the case. But this is exactly the kind of thing the federal government, with its huge amount of research arms and huge ability to run tests, should be able to do something about.

And so I’d say — these are in some kind of conflict — but first thing, focus on growing areas. That’s not to say don’t give any infrastructure money to declining areas —

It’s not roads, it’s not bridges, but something like improving broadband to rural areas — would you do that? Would you spend money to do that?

So I think that’s a very bad idea. I do not think we should be subsidizing the continued existence of declining areas. And so we need to replace infrastructure to keep them safe for the people who will remain there; I think that that’s great. But we should not be in the business of attempting to convince people to stay in areas they would not otherwise stay in.