Hsieh and Moretti on Allocations across Cities

the implied cost of housing restrictions across the whole U.S., and Chang and Enrico find that aggregate output is lower by about 10-14% because of them.

The Growth Economics Blog

Last post on the NBER growth session. Chang-Tai Hsieh (Chicago) and Enrico Moretti (Berkeley) presented a paper on wage dispersion across cities in the U.S. Wage dispersion (New Yorkers earn more than people in Cleveland) either represents compensation for living costs (housing in New York is more expensive than in Cleveland), a real difference in productivity (New Yorkers are more productive than Clevelanders), or some combination of the two.

What Chang and Enrico find is that the increase in wage dispersion across cities in the U.S. over the last thirty-ish years is due almost entirely to rising house prices in six cities: NY, DC, Boston, San Fran, San Jose, and Seattle. Wages have gone up rapidly in those cities, but that is basically just compensating their citizens for the higher costs of living.

Now, given the costs of living, the allocation of population across cities in the U.S. is…

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