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Cognitive Hubs and Spatial Redistribution

Author

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  • Esteban Rossi-Hansberg
  • Pierre-Daniel Sarte
  • Felipe Schwartzman

Abstract

In the U.S., cognitive non-routine (CNR) occupations associated with higher wages are disproportionately represented in larger cities. To study the allocation of workers across cities, we propose and quantify a spatial equilibrium model with multiple industries that employ CNR and alternative (non-CNR) occupations. Productivity is city-industry-occupation specific and partly determined by externalities across local workers. We estimate that the productivity of CNR workers in a city depends significantly on both its share of CNR workers and total employment. Together with heterogeneous preferences for locations, these externalities imply equilibrium allocations that are not efficient. An optimal policy that benefits workers equally across occupations incentivizes the formation of cognitive hubs, leading to larger fractions of CNR workers in some of today's largest cities. At the same time, these cities become smaller to mitigate congestion effects while cities that are initially small increase in size. Large and small cities end up expanding industries in which they already concentrate, while medium-size cities tend to diversify across industries. The optimal allocation thus features transfers to non-CNR workers who move from large to small cities consistent with the implied change in the industrial composition landscape. Finally, we show that the optimal policy reinforces equilibrium trends observed since 1980. However, these trends were in part driven by low growth in real-estate productivity in CNR-abundant cities that reduced welfare.

Suggested Citation

  • Esteban Rossi-Hansberg & Pierre-Daniel Sarte & Felipe Schwartzman, 2019. "Cognitive Hubs and Spatial Redistribution," NBER Working Papers 26267, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:26267
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    References listed on IDEAS

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    1. David Albouy, 2009. "The Unequal Geographic Burden of Federal Taxation," Journal of Political Economy, University of Chicago Press, vol. 117(4), pages 635-667, August.
    2. Dominick Bartelme & Arnaud Costinot & Dave Donaldson & Andres Rodriguez-Clare, "undated". "The Textbook Case for Industrial Policy: Theory Meets Data," Working Papers 675, Research Seminar in International Economics, University of Michigan.
    3. Pablo Fajgelbaum & Cecile Gaubert, 2018. "Optimal Spatial Policies, Geography and Sorting," NBER Working Papers 24632, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Stephen J. Redding, 2020. "Trade and geography," CEP Discussion Papers dp1718, Centre for Economic Performance, LSE.
    2. Keller, Wolfgang, 2020. "Comments on Mandelman and Waddle's “Intellectual property, tariffs, and international trade dynamics”," Journal of Monetary Economics, Elsevier, vol. 109(C), pages 104-106.
    3. Farid Farrokhi, 2021. "Skill, Agglomeration, And Inequality In The Spatial Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(2), pages 671-721, May.
    4. Sharat Ganapati, 2020. "Comment on The Servicification of the US Economy: The Role of Startups versus Incumbent Firms," NBER Chapters, in: The Role of Innovation and Entrepreneurship in Economic Growth, National Bureau of Economic Research, Inc.
    5. Fabian Eckert & Sharat Ganapati & Conor Walsh, 2020. "Skilled Scalable Services: The New Urban Bias in Economic Growth," CESifo Working Paper Series 8705, CESifo.

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    More about this item

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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