It is on sale. But, I may not download until this weekend. The part that has me the most interested.

Gordon argues that the real increase in inequality hasn’t been as large as it first appears, noting research from Enrico Moretti which concludes that “fully two-thirds of the previously documented increase in the return to college between 1980 and 2000 vanishes when he corrects for differences in the cost of living across metropolitan areas.”

This finding is important but Gordon is, I think, misinterpreting it. The measured inequality in earnings may vanish when you control for cost of living, but the actual money doesn’t vanish. It’s rent. Imagine two tenant farmers, one of whom sells crops worth twice as much as the other. At first glance, inequality seems high. At second glance, it turns out that the “richer” farmer’s earnings are mostly vanishing in the form of higher rent. That’s not an optimistic story about inequality being lower than it seems. It’s Ricardo’s story about diminishing returns, the limits to economic growth, and an increasingly unequal society in which the rewards of human labor are going to landowners rather than working people.

So, if Matt is right then there are three basic outcomes from loosening zoning

1) Rents stop accruing to landowners and fall through to unskilled labor. Not this means that the college skill premium will fall. The logic is that college only pays as much as it does because you need to pay high rents to access the benefits of a college degree.

2) Rents fall through but stop at college goers. The notion here is that there something about college which is holding people back. Maybe financing. Maybe culture. Maybe innate ability. However, it implies that the effective gap between college educated and not will increase.

3) Rents fall through to innovators. Here the story is that suddenly you can put up high rises all over Silicon Valley and lots of people flock there – possibly from all over the world. However, all that really does is lower effective costs for APPL and so profits rise.

Advertisements