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Economic Diversity and the Resilience of Cities

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Abstract

We show how local worker flow adjustment margins yield a theory-consistent sufficient statistic approximating the welfare effects of local shocks. Furthermore, we isolate a city’s insurance value as this approximation’s second-order term. Leveraging rich labor flows data across occupations, industries, and cities in France, we estimate spatial and non-spatial flows responses to local labor demand shocks. Less economically diverse French cities experience deeper contractions in gross outflows following negative shocks. In contrast, more economic concentration begets a modestly larger increase in gross worker flows following positive shocks. Altogether, we uncover a sizable welfare insurance gains from local economic diversity.

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  • Francois de Soyres & Simon Fuchs & Illenin O. Kondo & Helene Maghin, 2024. "Economic Diversity and the Resilience of Cities," Opportunity and Inclusive Growth Institute Working Papers 106, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmoi:99165
    DOI: 10.21034/iwp.106
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    Keywords

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    JEL classification:

    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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