Essays in Macroeconomics and Economic Geography

In this doctoral thesis I study how barriers and distortions inherent in labor and housing markets affect aggregate productivity of a national economy. In particular, I focus on regulation of local housing supply, constraints to labor mobility across geographical regions within a country, and firm size distortions. In Chapter 1 of this thesis, The Rise of Housing Supply Regulation in the U.S.: Local Causes and Aggregate Implications, I investigate the effects of the rise of regulatory restrictions on the supply of housing in recent decades in the United States. I study the implications of the rise in regulation for aggregate productivity, and for wage and house price dispersion across locations, represented by metropolitan statistical areas. Underlying this work is the evidence that the dispersion of wages and house prices across U.S. metro areas has grown, and that the sorting of college graduates into highly productive and expensive places has become stronger since 1980 (Moretti, 2004; Berry and Glaeser, 2005; Van Nieuwerburgh and Weill, 2010; Diamond, 2016). I argue that these rising regional disparities have been amplified by the choices of residents of the most demanded metro areas to tighten regulation. To quantify this amplification effect, I build a general equilibrium model with multiple locations and heterogeneous workers. Local house prices depend on regulation, which is decided endogenously by voting: renters want less regulation and owners want more. Faster productivity growth in some locations attracts workers and raises housing prices there. High-skilled workers, being less sensitive to rising prices, sort into productive and expensive areas. The growing prices in turn make homeowners vote for stricter regulation, which raises prices even more and leads to stronger sorting and larger wage differences.