Why are People Moving Away from Financial Centers?

It’s a simple question.  Why are people moving away from financial centers?

In calendar year 2014, at least $20 billion in income will shift between U.S. states.  That $20 billion forecast is an increase of about $5 billion from the most recently reported Internal Revenue Service (IRS) figures for 2010 of about $15 billion.

The anticipated $20 billion income shift represents about $100 billion in wealth, or about 0.2 percent of total wealth held by individuals and nonprofit corporations in the United States.

Anyone surprised by how big the shift is?  Is $100 billion in wealth even worth talking about when it’s only 0.2 percent of total individual and nonprofit corporation wealth?

Well, here’s something to think about – does it have anything to do with being a financial center?

Before going further, here is what the actual figures, as reported by IRS statisticians, looks like (the data visualization was done by Job Search Digest).

Please note that the following figures are snapshots of the animated data.  Please click on this Tableau Public link for a full interactive time-animation of the income shift by county across time.  The figures are broken up into five tabs: the entire U.S., the western U.S., the middle U.S., the northeastern U.S., and the southern U.S.

The data clearly show that the financial centers in the United States – New York City, Chicago, Los Angeles, and counties surrounding these cities, among others, have been and continue to be net losers of migrating wealth.

Why?

The question, of course, leads to widespread speculation among all observers.  Some economists point to the high cost of living in cities like New York and Chicago as a major explanation for the migration.  Others argue that high taxes cause individuals to leave a high-cost government state for a place more respectful of private economic initiative.  Still others argue that perhaps high regulation is the answer, essentially arguing that businesses move to places where it is easier to do business (and, of course, working individuals follow suit).  Other explanations for the $100 annual wealth migration are temperature and climate (meaning individuals move to more sunny climates like Florida), schools, dying and booming industries, and government incentives, to name just a few.

What’s interesting, though, is that the shift away from financial centers is pretty clear, and, this shift isn’t just a financial market bust story.  The wealth shift is a long-term trend (although the recent housing market bust and subsequent recession certainty had its effect on financial industry employment).

One possible explanation for the shift away from financial centers is that states with financial centers also tend to be high tax cities and states, in addition to high cost-of-living areas.  All three are explanations are probably connected.

In any event, people are shifting wealth away from cities well known as financial centers.  Why people are moving away from financial centers is up for debate (and, at times, a quite heated debate).  Some potential reasons for the shift include taxes, moderate climate, regulation, and cost of living, to name just a few.