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Urban-Biased Growth: A Macroeconomic Analysis

Author

Listed:
  • Fabian Eckert
  • Sharat Ganapati
  • Conor Walsh

Abstract

Since 1980, US wage growth has been concentrated in high-density locations, nearly doubling the wage-density elasticity across cities. We show that this urban-biased growth originates entirely at large, IT-intensive firms in the Business Services sector. We propose a simple explanation centered on the dramatic decline in IT prices over this period. First, a complementarity between IT capital and firm scale makes large firms benefit most from cheaper IT capital. Second, because large Business Services firms are concentrated in dense cities, falling IT prices generate urban-biased growth. Disciplining this mechanism with firm-level data, we find that the observed decline in IT prices accounts for approximately 75% of the increase in the wage-density gradient.

Suggested Citation

  • Fabian Eckert & Sharat Ganapati & Conor Walsh, 2022. "Urban-Biased Growth: A Macroeconomic Analysis," NBER Working Papers 30515, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30515
    Note: DAE EFG ITI PR
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    Cited by:

    1. Markusen, James & Gervais, Antoine & Venables, Anthony, 2021. "Urban specialisation; from sectoral to functional," CEPR Discussion Papers 15677, C.E.P.R. Discussion Papers.
    2. Oliver Hümbelin & Lukas Hobi & Robert Fluder, 2021. "Rich Cities, Poor Countryside? Social Structure of the Poor and Poverty Risks in Urban and Rural Places in an Affluent Country. An Administrative Data based Analysis using Random Forest," University of Bern Social Sciences Working Papers 40, University of Bern, Department of Social Sciences, revised 10 Nov 2021.
    3. Acosta, Camilo & Lyngemark, Ditte Håkonsson, 2021. "The internal spatial organization of firms: Evidence from Denmark," Journal of Urban Economics, Elsevier, vol. 124(C).
    4. Althoff, Lukas & Eckert, Fabian & Ganapati, Sharat & Walsh, Conor, 2022. "The Geography of Remote Work," Regional Science and Urban Economics, Elsevier, vol. 93(C).
    5. Lukas Althoff & Fabian Eckert & Sharat Ganapati & Conor Walsh, 2020. "The City Paradox: Skilled Services and Remote Work," CESifo Working Paper Series 8734, CESifo.
    6. Rafael Guntin & Federico Kochen, 2025. "The Origins of Top Firms," Working Papers wp2025_2516, CEMFI.
    7. Marcolino, Marcos, 2022. "Accounting for structural transformation in the U.S," Journal of Macroeconomics, Elsevier, vol. 71(C).
    8. Tarek A. Hassan & Aakash Kalyani & Pascual Restrepo, 2025. "New Technologies and the College Premium," Working Papers 2025-022, Federal Reserve Bank of St. Louis.
    9. Beck, Anne & Doerr, Sebastian, 2023. "The financial origins of regional inequality," CEPR Discussion Papers 18685, C.E.P.R. Discussion Papers.
    10. Enghin Atalay & Sebastian Sotelo & Daniel Tannenbaum, 2024. "The Geography of Job Tasks," Journal of Labor Economics, University of Chicago Press, vol. 42(4), pages 979-1008.
    11. Clémence Berson & Pierre-Philippe Combes & Laurent Gobillon & Aurélie Sotura, 2023. "Time-Varying Agglomeration Economies and Aggregate Wage Growth," Working Papers hal-04346733, HAL.
    12. Schubert, Torben & Ashouri, Sajad & Deschryvere, Matthias & Jäger, Angela & Visentin, Fabiana & Cunningham, Scott & Hajikhani, Arash & Pukelis, Lukas & Suominen, Arho, 2023. "The role of product digitization for productivity," MERIT Working Papers 2023-004, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    13. Perl, Maximilian, 2023. "Agglomerations, tasks and wage growth," Ruhr Economic Papers 999, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    14. Tasos Kitsos & Max Nathan & Diana Gutiérrez-Posada, 2025. "Don’t Shoot the Pianist: Creative Firms, Workers, and Neighborhood Gentrification," Economic Geography, Taylor & Francis Journals, vol. 101(1), pages 60-85, January.

    More about this item

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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