Working Paper: NBER ID: w30515
Authors: Fabian Eckert; Sharat Ganapati; Conor Walsh
Abstract: After 1980, larger US cities experienced substantially faster wage growth than smaller ones. We show that this urban bias mainly reflected wage growth at large Business Services firms. These firms stand out through their high per-worker expenditure on information technology and disproportionate presence in big cities. We introduce a spatial model of investment-specific technical change that can rationalize these patterns. Using the model as an accounting framework, we find that the observed decline in the investment price of information technology capital explains most urban-biased growth by raising the profits of large Business Services firms in big cities.
Keywords: Urban-biased growth; Wage growth; Information and communication technology; Business services; Macroeconomics
JEL Codes: J3; O33; R11; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Decline in ICT prices (L96) | Urban-biased wage growth (J39) |
| Business services sector (L84) | Urban-biased wage growth (J39) |
| ICT capital use in large business services firms (L86) | Wage growth in large cities (J39) |
| ICT price decline (O39) | Increased productivity of larger firms (L25) |
| Increased productivity of larger firms (L25) | Increased demand for labor (J23) |
| Increased demand for labor (J23) | Higher wages (J39) |
| ICT and skilled labor interaction (J24) | Faster wage growth for college-educated workers (J39) |