K-12 Tax & Spending climate: Housing is eating the world

Alex Tabarrok:

The return to education, for example, has increased in the United States but it’s less well appreciated that in order to earn high wages college educated workers must increasingly live in expensive cities. One consequence is that the net college wage premium is not as large as it appears and inequality has been over-estimated. Remarkably Enrico Moretti (2013) estimates that 25% of the increase in the college wage premium between 1980 and 2000 was absorbed by higher housing costs. Moreover, since the big increases in housing costs have come after 2000, it’s very likely that an even larger share of the college wage premium today is being eaten by housing. High housing costs don’t simply redistribute wealth from workers to landowners. High housing costs reduce the return to education reducing the incentive to invest in education. Thus higher housing costs have reduced human capital and the number of skilled workers with potentially significant effects on growth.