Urban-Biased Growth: A Macroeconomic Analysis

Abstract

Since 1980, economic growth in the U.S. has been fastest in its largest cities. We show that a group of skill-and information-intensive service industries are responsible for all of this new urban bias in recent growth. We then propose a simple explanation centered around the interaction of three factors: the disproportionate reliance of these services on information and communication technology (ICT), the precipitous price decline for ICT capital since 1980, and the preexisting comparative advantage of cities in skilled services. Quantitatively, our mechanism accounts for most of the urban biased growth of the U.S. economy in recent decades.

The Geography of Remote Work

“…We show inEckert, Ganapati, and Walsh (2020b) that SSS industries have a disproportionate fraction of college workers among their workforce. SSS are also characterised by intensive and increasing use of ICT, which allows for their remote delivery.…”

“…Cities contain many jobs that can be done from home due to their specialization in a particular class of skill-and information-intensive services, which in other work we have called Skilled Scalable Services (see Eckert, Ganapati, and Walsh, 2020b). These Skilled Scalable Services (SSS) comprise four 2-digit NAICS industries: Information (NAICS 51), Finance and Insurance (NAICS 52), Professional Services (NAICS 54), and Management of Companies (NAICS 55).…”

“…The regressions are unweighted, whereas in Figure 1 we show a population-weighted fit. SSS employment share is the fraction of local employment in a commuting zone in NAICS industries 51, 52, 54, or 55 (see Eckert, Ganapati, and Walsh, 2020b). College employment share is the fraction of workers with at least a college degree in a given commuting zone.…”

“…These low-skill workers have seen their urban wage premia eroded in recent decades as more and more of them moved into consumer services in the U.S. densest urban areas (see David and Dorn, 2013;Autor, 2019). At the same time, these cities became more expensive to live in due to the SSS industries' success (see Eckert, Ganapati, and Walsh, 2020b). In this paper, we document another vulnerability of low-skill workers: their disproportionate and one-way dependence on SSS workers' local service demand for their livelihood.…”

“…The larger loss of hours for SSS workers in high-density commuting zones reflects the higher initial employment shares for SSS in these locations (seeEckert, Ganapati, and Walsh, 2020b) 10 Almagro and Orane-Hutchinson (2020) and Almagro, Coven, Gupta, and Orane-Hutchinson (2020) have pointed to another set of additional vulnerabilities of low-skill service workers in big cities: that their face-to-face jobs have implied disproportionate contracting of the COVID-19 virus itself.…”