Where You Live in the U.S. Is a Consumption Good, Part Two

I thought I would throw in a little economic research to support Grover Cleveland’s point:

Based on a panel of quality of life and business environment measures, households prefer MSAs in warm coastal areas and non-metropolitan locations, while firms prefer large, growing cities. In addition, cities with improving business environments acquire increasing shares of workers, especially workers with high levels of human capital; cities with improving consumer amenities become relatively more populated by retirees.

Further analysis of individual level migration decisions indicates that regardless of marital status, young, highly educated households tend to move towards places with higher quality business environments. This tendency is especially pronounced among highly educated couples who are more subject to job market co-location problems. In contrast, regardless of education, couples near retirement tend to move away from places with favorable business environments and towards places with highly valued consumer amenities. These patterns help explain why areas unattractive to both households and business have struggled, as with upstate New York, while the sun-belt and other regions are thriving.

From Chen and Rosenthal (2008). They argue that household-preferred areas will tend to have low wages and high rents, while business-preferred locations have high wages and high rents.

2 thoughts on “Where You Live in the U.S. Is a Consumption Good, Part Two

  1. The problem is that there is high rent, and then there is high rent. A law school grad working for a big firm in New York will make 160, compared to 140 he’d make in Dallas, but based on cost of living, his Dallas salary is equivalent to over 200k in new York. I have a source for that. I’ll try to find it.

    1. Right. Specifically what they do is to adjust average wage and rent levels for each MSA and state non-MSA region for average quality of worker and average quality of housing so that they have a consistent, comparable average wage and rent for each area. Then they measure quality of business environment as adjusted-wage plus adjusted-rent, on the hypothesis that these are the locations highly valued by capital, and where capital is especially abundant due to locational desirability to capital, land and labor will be priced highest. They measure quality of household environment (amenities) as adjusted-rent minus adjusted-wage, on the hypothesis that particularly labor-attractive locations will have low labor price and high land price.

      The one problem I have with this setup is that land price is also partly dependent on artificial restrictions on residential land supply, i.e., land-use regulations. You’d have to adjust for those. The top amenities locations are Santa Cruz, Honolulu, San Francisco-Oakland-Vallejo, Salinas-Sea Side-Monterey, Santa Barbara-Santa Maria-Lompoc, San Jose, and Hawaii non-MSA. That sounds pretty plausible, but OTOH California & Hawaii also have really tight land-use regs, which may drive rents up.

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