Over the past 30 years, the convergence has largely stopped. Incomes in the poorer states are no longer catching up to incomes in rich states. In a new working paper, Shoag and Peter Ganong, a doctoral student in economics at Harvard, offer an explanation: The key to convergence was never just mobile capital. It was also mobile labor. But the promise of a better life that once drew people of all backgrounds to rich places such as New York and California now applies only to an educated elite — because rich places have made housing prohibitively expensive. (Shoag and Ganong visualized these changes in aseries of excellent animated graphics.)
The states with the highest incomes also used to have the fastest-growing populations, as Americans moved to the places where they could earn the most money. Over time, that movement narrowed geographic income differences. In 1940, per-capita income in Connecticutwas more than four times that in Mississippi. By 1980, Connecticut was still much richer, but the difference was only 76 percent. In the two decades after World War II, Shoag and Ganong find, migration explains about a third of the convergence of average incomes across states.
But migration patterns changed after 1980. “Instead of moving to rich places, like San Franciscoor New York or Boston, the population growth is happening in mid-range places like Phoenix orFlorida,” Shoag says. Lower-skilled people, defined as those with less than 16 years of education, are actually moving away from high-income states.