Have you ever noticed how social reformers often want new government regulations to do away with behavior and outcomes that past government regulations helped create? For as much as they talk about the greed of capitalists and the power of government to change society, they seem to miss that people do change their behavior in response to the government’s rules.
Whether crafted with good intentions or bad, government regulations have long restricted opportunity. Those barriers may not explain why Charlotte ranked 50th of 50 large cities for economic opportunity in 2014, but they do help explain why few people advanced from the lowest income quintile to the highest in any city.
Government policy at every level devalued black homeownership and deliberately kept blacks out of white neighborhoods. The federal Homeowners’ Loan Corporation (HOLC), one of the New Deal agencies created in 1933, would insure home loans only with white owners and white residents in white neighborhoods. Black buyers could not purchase in white neighborhoods. White landlords in white neighborhoods could not rent to black tenants if they wanted low HOLC-insured mortgage rates.
Just to be clear, this is not about whether individual owners in white neighborhoods were racist — there were willing sellers and renters — but about the federal government’s refusal to back mortgages in proximity to black families. In what amounted to a self-fulfilling policy prophecy, unsubsidized home prices in black neighborhoods did not grow as fast as the HOLC-subsidized prices in white areas of cities.
Once property values in black neighborhoods were suppressed, it was cheaper for government to run highways through them. Highway 52 in Winston-Salem separates the historically black east side of the city from the historically white and downtown areas. Urban renewal programs then replaced functioning albeit rundown neighborhoods with new but dysfunctional housing projects.
Rather than seek ways to undo the damage of the government-enforced segregation to black neighborhoods and black schools, Charlotte and other cities across the country then tried to integrate schools by busing students across town. This experiment did little for the academic achievement of black students even as it allowed interracial resentments to fester, which persisted even after the county more or less gave up on racial integration in favor of socioeconomic diversity a generation ago.
Charlotte’s last-place ranking may have been a blessing as a way to focus attention on barriers to economic mobility. Similar histories have been written about Detroit, Boston, Los Angeles, and just about every city in between, but without such a clear call to action. Charlotte city leaders have rallied through Leading on Opportunity, For Charlotte, and other venues to expand opportunity.
As I argue in my recent paper “Thriving in North Carolina: Justice, Opportunity, and Barriers to Economic Mobility,” dismantling structural barriers to work at the state and local levels can be an important component of any path forward. For example, minimum wage increases reduce the number of new jobs for low-skilled workers, which disproportionately affects young workers, especially young black men. The longer cities and states can refrain from raising the minimum wage, the more room they leave for lower-skilled workers to start gaining skills so they can earn more.
Occupational licenses distort labor market outcomes and do so more for male people of color and women. One aspect of this result is the difficulty to move to another state in a licensed occupation. Simply getting a license can also be a challenge. Researchers at the Institute for Justice studied 102 occupational licenses affecting low- and moderate-income workers and found they required, on average, “$209 in fees, one exam, and about nine months of education and training.” Separately, labor economist Morris Kleiner found, “The additional requirements needed to earn licensure may steer low-skilled or low-income workers into even lower-paying but more accessible jobs that do not require a license, such as janitors or waiters.”
Small businesses are more likely to bear the burden of the cost of licensing, which limits their ability to compete and grow, economists Peter Blair and Bobby Chung found. Blair stated, “It is costlier for smaller firms to do background checks and other types of screening; hence smaller firms pay a larger premium for the information in a license than larger firms do.”
Licensing restricts the number of people in a field, which increases the wages of those in the field and the prices consumers pay for their goods and services. Minimum wage increases also often get passed along to consumers. Land-use restrictions can limit the ability to locate businesses in places where they can hire local residents and provide low-cost goods and services.
Those who care about justice and opportunity should not accept high and rising prices as the status quo that must be met with mandated wages or subsidized access, which only drive prices higher. Removing barriers could halt the accumulation of rules and costs that make it harder to get ahead with work and saving. At least it would be a different approach from creating new rules to deal with the problems created by the current rules.