Estimating Who Benefits from Productivity Growth: Local and Distant Effects of City Productivity Growth on Wages, Rents, and Inequality

We first estimate the direct effects on local workers’ earnings and housing costs from increases in local labor demand caused by gains in city-level manufacturing productivity. We find that local workers benefit from productivity growth, even after subtracting increases in housing costs. These gains are larger for local less educated workers, such that productivity growth reduces local inequality. We then propose and implement a new transparent method of estimating indirect effects of local productivity growth on earnings and housing costs of workers in other cities. We find that these general equilibrium effects are economically important and disproportionately benefit college-educated workers.