Land-Use Regulation Increases Income Inequality

July 30, 2012

Harvard University economists have proven that land-use regulation is a major cause of growing income inequality in the United States. By restricting labor mobility, the economists say, such regulation has played a "central role" in income disparities, says Randal O'Toole, a senior fellow with the Cato Institute.

  • When measured on a state-by-state basis, American income inequality declined at a steady rate of 1.8 percent per year from 1880 to 1980.
  • The slowing and reversal of this long-term trend after 1980 is startling.
  • Not by coincidence, the states with the strongest land-use regulations -- those on the Pacific Coast and in New England -- began such regulation in the 1970s and 1980s.
  • Forty to 75 percent of the decline in inequality before 1980, the Harvard economists say, was due to migration of workers from low-income states to high-income states.

The freedom to easily move faded after 1980 as land-use regulation in many of the highest-income states made housing unaffordable to low-income workers. Average incomes in those states grew, leading them to congratulate themselves for attracting high-paid workers when what they were really doing is driving out low- and (in California, at least) middle-income workers.

The barrier between the 1 percent and the 99 percent is far more porous than the one between middle class and working class, says O'Toole. The rising cost of higher education and the high cost of moving into regions with land-use regulation prevent less-educated people from bettering themselves. Increased regulation of commercial operations limits people's ability to start small businesses. Increased traffic congestion (favored by "progressive" anti-auto cities) also hits working-class people harder than middle-class workers, as the former are less likely to be able to take advantage of flex-time, telecommuting and other ways of avoiding congestion.

Source: Randal O'Toole, "Yes, Land-Use Regulation Does Increase Income Inequality,", July 23, 2012. Peter Ganong and Daniel Shoag, "Why Has Regional Convergence in the U.S. Stopped?" Harvard University, May 31, 2012.

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