Inequality Across and Within US Cities around the Turn of the Twenty-First Century

Abstract

(...) Together, all these factors determine a spatial equilibrium, in which people choose where to live and wages and rental prices adjust accordingly. What recent research has shown is that the nature of this spatial equilibrium has changed in the US in the past few decades. Large cities such as Washington, DC, New York, or San Francisco are increasingly places for the skilled elites. Those cities have experienced higher wage growth, and their growth has been unequal; concentrating income among educated professionals. At the same time, much of that wage growth has been o§set by increased rents. Not surprisingly, the share of college-educated workers in these cities has increased. Those facts can be accounted for by a spatial equilibrium framework as consequences from relative increases in the demand for skilled labor by Örms in large, skilled cities. An important part of the trends may have to do with adoption of computer technology. The mechanism is also most likely related to greater spillovers among those skilled workers in those cities, but the precise nature of those spillovers is still open to more research. In what follows, I describe in greater detail the research documenting those facts and the lessons that one can derive about the underlying mechanisms. In Section 1, I lay out the facts, and in Section 2, I lay out the explanations. Section 2 includes the presentation of a canonical urban equilibrium model with two occupations that can be used to think through di§erent mechanisms and discuss the evidence surrounding alternative hypotheses.