How the Government and Special Interests Thwart Economic Mobility

Thursday, December 14, 2017

Everyone values economic mobility. In fact, the decline of mobility is one of the biggest complaints made by people who prefer government intervention in free markets. What some are starting to learn, however, is that government intervention is the chief obstacle to mobility. Lower-income people would benefit immeasurably from the scrapping of those interventions.

David Schleicher, an associate professor at Yale Law School, writes:

Over the last 40 years, we have gotten increasingly worse at allowing and encouraging people to move to the places where they will do their best economically. Economists from the Federal Reserve and elsewhere have concluded that labor mobility has declined substantially since the 1970s.…

The internal market for labor in the United States has become sclerotic, creating both lost wealth and greater inequality.

Why? Entry limits like zoning in rich cities and regions and occupational licensing regimes have kept people out of the hottest job markets.

Schleicher also notes, “Exit limits like public benefits that are not easily transferable among jurisdictions have meant that people — particularly the least fortunate — are less willing to leave economically struggling places.”

Here I’ll concentrate on zoning and licensing as barriers to mobility. (For the general case against licensing, see my AIER research brief “Occupational Licensing Harms Consumers and Producers.”)

It shouldn’t take much to persuade anyone that what Brink Lindsey calls “regressive regulation” — licensing as well as zoning and other land-use restrictions — impede mobility. Analysts from across the political spectrum are converging on this view. The Obama White House included the detrimental effects on mobility in a study of licensing.

Moreover, the well-connected interest groups that favor these two forms of government interference with peaceful economic action do so precisely to minimize competition (for jobs and land), which is the same thing as thwarting mobility. Seeking personal benefits not available in the free market — otherwise known as rent-seeking — is as old as government intervention itself.

Zoning, for all its hype about enlightened scientific planning, has the often intended effect of inflating property prices in particular places and excluding people — lower-income people especially — from those places. This is achieved, for example, through minimum-density rules and building-height restrictions. Because of the high prices that result from artificial scarcity, lower-income people are effectively locked in declining small towns and rural areas and out of booming, innovative areas. “Rich cities and states have made it very hard for people to move in,” Schleicher writes. “The major limit has been land-use rules. At the local level, zoning, subdivision rules, and historic preservation rules have limited construction not only in rich suburbs, as they once did, but increasingly in big cities and even distant political subdivisions.”

Occupational licensing similarly erects gates around particular lines of work by inflating the cost of entry with expensive and often superfluous education requirements. “It is absurd that almost 30 percent of American workers have to get state-mandated licenses to do their jobs,” Antonin Scalia Law School Professor Ilya Somin writes. Licensing not only keeps people out of occupations within a city, it also blocks interstate mobility because a license issued in one state is not honored in other ones. The practitioner again has to spend time and money qualifying for a license.

In both cases, as public choice analysis predicts, people with a vested interest in such obstacles to freedom have the inside track in influencing public policy. Upscale property owners and members of licensed occupations have an easier time organizing for their own advantage than the unorganized victims and potential victims of the policies, who may not even realize what stands between them and their aspirations. This well-known phenomenon is called the problem of concentrated benefits and dispersed costs.

The facts support the analysis. “A decline in labor mobility — and, in particular, limits on the capacity of workers to move to hot labor markets and away from dying ones — has played a substantial role in the slow GDP growth we have seen since the 1970s,” Schleicher writes. “Getting America on the move again is crucial to realizing the benefits of the technological progress we have made and to increasing incomes for ordinary workers.” Richard V. Reeves and Dimitrios Halikias of the Brookings Institution add that research shows “the movement of less-skilled workers to higher-growth areas has not risen in recent years, a break with the historical pattern.”

Part of the reason many people have been left out of the recent economic progress is these barriers to mobility, which have been called examples of “opportunity hoarding.” And they don’t just exclude people from occupations and high-growth areas. Since government-schools systems are geographically based, land-use restrictions that raise the price of homes near “high-scoring public schools” can deprive children of educational opportunities and harm many generations to come.

Government intervention has far-reaching, even if unintended, bad consequences. Much of it systematically benefits the well-off at the expense of those who have not yet achieved the American Dream.

Sheldon Richman

Sheldon Richman is the executive editor of The Libertarian Institute, senior fellow and chair of the trustees of the Center for a Stateless Society, and a contributing editor at He is the former senior editor at the Cato Institute and Institute for Humane Studies, former editor of The Freeman, published by the Foundation for Economic Education, and former vice president at the Future of Freedom Foundation. His latest book is America's Counter-Revolution: The Constitution Revisited.