Stuck! The Law and Economics of Residential Stability

Abstract

America has become a nation of homebodies. Rates of inter-state mobility, by most estimates, have been falling for decades. Even research that does not find a general decline finds that inter-state mobility rates are low among disadvantaged groups and are not increasing despite a growing connection between moving and economic opportunity. Perhaps more important than changes in overall mobility rates are declines in mobility in situations and places where it is particularly important. People are not leaving areas hit by economic crises, with unemployment rates and low wages lingering in these areas for decades. And people are not moving to rich regions where the highest wages are available. This Article advances two central claims. First, declining inter-state mobility rates create problems for federal macroeconomic policy-making. Low rates of inter-state mobility make it harder for the Federal Reserve to meet both sides of its “dual mandate” of stable prices and maximum employment; impair the efficacy and affordability of federal safety net programs that rely on state and local participation; and reduce both levels of wealth and rates of growth by inhibiting agglomeration economies. While determining an optimal rate of inter-state mobility is difficult, policies that unnaturally inhibit inter-state moves worsen national economic problems.Second, the Article argues that governments, mostly at the state and local levels, have created a huge number of legal barriers to inter-state mobility. Land-use laws and occupational licensing regimes limit entry into local and state labor markets; differing eligibility standards for public benefits, public employee pension policies, homeownership subsidies, state and local tax regimes, and even basic property law rules reduce exit from states and cities with less opportunity; and building codes, mobile home bans, federal location-based subsidies, legal constraints on knocking down houses and the problematic structure of Chapter 9 municipal bankruptcy all limit the capacity of failing cities to “shrink” gracefully, directly reducing exit among some populations and increasing the economic and social costs of entry limits elsewhere. Put together, the Article shows that big questions of macroeconomic policy and performance turn on the content of state and local policies usually analyzed using microeconomic tools. Many of the legal barriers to inter-state mobility emerged or became stricter during the period in which inter-state mobility declined. While assigning causality is difficult, public policies developed by state and local governments more interested in local population stability than in ensuring successful macroeconomic conditions either generated or did not push back against falling mobility rates. The Article concludes by suggesting ways the federal government could address falling mobility rates.