Alice's Webpage
Working Papers
The End of Income Convergence? Understanding Income Convergence using Spatial Equilibrium Model
Job Market Paper
This paper reassesses the issue of regional income convergence across metropolitan areas (MSAs) in the United States. Consistent with previous literature, I find that convergence of income deflated by a national price index (nominal income) has ended in 1980 and even started to reverse since 2000. Despite the end of nominal convergence, I show that the real income, deflated by the local price index I constructed based on housing costs, continues to converge. In addition, a faster housing cost divergence relative to nominal income divergence is a condition for the coexistence of nominal income divergence and real income convergence. To understand this coexistence, I employ a standard Rosen-Roback spatial equilibrium model with a feature of perfect labour mobility that can account for the high labour mobility in the US. Consistent with the prediction of the spatial equilibrium model, I find that local consumer amenities also converged between 1980 and 2000. Using the model, I am able to use the observed household income and housing costs to infer the model fundamentals of productivity and amenity for each metropolitan area in the US. Convergence analyses using counterfactual income and housing costs suggest that productivity is the main factor behind the end of nominal income convergence. However, amenity and productivity are equivalently crucial in determining the housing costs and real income evolution processes.
Skill-specific Income Convergence
Work in progress
Using data from the US decennial censuses (the US census hereafter) from 1960 to 2000 and the American Community Surveys (ACS hereafter) from 2000 to 2017, my project investigates how real income and welfare converge (diverge) in the period between 1960 and 2017. With this data set, I have found that even though the nominal income convergence rate has slowed down to less than half of its pre-1980 norm, real income does continue to converge across metropolitan areas in the US. Specifically, the nominal income convergence rate decreased from the 2.0% before to 0.8% annually after 1980, while real income convergence rate only decreases from 2.3% to 1.9%. My findings also indicate that workers with college degree or above (high-skill workers hereafter) are the group that show different patterns of convergence in terms of nominal income and real income, while low-skill workers (with less than college degree education) show similar and consistent convergence rates in both nominal- and real-income.
The difference in nominal income convergence between high-skill and low-skill household is likely due to the agglomeration among high-skill workers. High-skill specific agglomeration leads to divergence in high-skill workers' productivity, with little impact on the low-skill workers. On the other hand, technology diffusions across space generates general technology convergence, and hence nominal income convergence among the low-skill households across metropolitan areas within the US. While high-skill households have different convergence patterns in real and nominal income, low-skill households' convergence patterns in both nominal and real income are consistent. This discrepancy is due to households of different skill levels have heterogeneous taste for amenities. Since high-skill households have higher value of amenities, they are willing to pay more to live in
cities with better amenities, relative to low-skill households.
Ongoing and Future Projects
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Income convergence and structural changes in the US economy