Urban-Biased Growth: A Macroeconomic Analysis
Since 1980, US wage growth has been fastest in large cities. Empirically, we show that most of this urban-biased growth reflects wage growth at large Business Services firms, which are also the most intensive users of information and communications technology (ICT) capital in the US economy. We provide an explicit economic mechanism whereby ICT is more complementary with labor at larger firms. Quantitatively, we find that with such a complementarity, the observed decline in ICT prices alone can account for most of the urban-biased growth, since Business Services firms in big cities tend to be large.
We thank Fabian Trottner for many in-depth discussions. We also thank Pol Antras, David Autor, Costas Arkolakis, Gideon Bornstein, Laura Castillo-Martinez, Jonathan Dingel, Pierre-Olivier Gourinchas, Gordon Hanson, J. Bradford Jensen, Tom Kemeny, Chris Moser, Michael Peters, Esteban Rossi-Hansberg, and Steve Redding for insightful comments. Any views expressed are those of the authors and not those of the U.S. Census Bureau. The Census Bureau's Disclosure Review Board and Disclosure Avoidance Officers have reviewed this information product for unauthorized disclosure of confidential information and have approved the disclosure avoidance practices applied to this release. This research was performed at a Federal Statistical Research Data Center under FSRDC Project Number 2193 (CBDRB-P2193-R8942, R9405, R9629, and R10013). Eckert and Walsh thank the International Economics Section at Princeton University where some of this work was completed. The present version of this paper supersedes “Skilled Scalable Services: The New Urban Bias in Economic Growth.” The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.