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An Urban Accounting for Geographic Concentration of Skills and Welfare Inequality

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  • Yuming Fu

    ()

  • Yang Hao

Abstract

Using Jones (2014) generalized human capital accounting, we extend the urban accounting model of Desmet and Rossi-Hansberg (2013) to account for the geographic distribution of skills across US metropolitan areas. The methodology allows the productivity of high-skill workers to depend on location advantage and local skill mix; the latter also determines the productivity of low-skill workers. Urban friction, rising with population size, reduces worker consumption relative to their wage income. Amenities for high-skill and low-skill workers in each city are calibrated so that the utility for each skill type is equalized across cities. We examine counterfactual skill-mix distribution across cities and welfare gap between the skill groups by shutting down spatial heterogeneity in location advantage, amenity and excess friction respectively. We show that skill mix becomes more even across cities absent heterogeneity in location advantages or in excess friction but it becomes more dispersed absent amenity heterogeneity. The welfare gap widens when heterogeneity in any of the three factors is eliminated. The generalized urban accounting model can shed light on the causes of increased concentration of skilled workers in large cities in US highlighted by E. Moretti (2008) and Diamond (2012) and the implications for welfare gap between the skill groups.

Suggested Citation

  • Yuming Fu & Yang Hao, 2015. "An Urban Accounting for Geographic Concentration of Skills and Welfare Inequality," ERSA conference papers ersa15p734, European Regional Science Association.
  • Handle: RePEc:wiw:wiwrsa:ersa15p734
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    File URL: http://www-sre.wu.ac.at/ersa/ersaconfs/ersa15/e150825aFinal00734.pdf
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    References listed on IDEAS

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    1. Donald R. Davis & Jonathan I. Dingel, 2019. "A Spatial Knowledge Economy," American Economic Review, American Economic Association, vol. 109(1), pages 153-170, January.
    2. Klaus Desmet & Esteban Rossi-Hansberg, 2013. "Urban Accounting and Welfare," American Economic Review, American Economic Association, vol. 103(6), pages 2296-2327, October.
    3. Rebecca Diamond, 2016. "The Determinants and Welfare Implications of US Workers' Diverging Location Choices by Skill: 1980-2000," American Economic Review, American Economic Association, vol. 106(3), pages 479-524, March.
    4. Mariana Pereira-López & Isidro Soloaga, 2015. "External returns to higher education in Mexico 2000-2010," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(1), pages 1-34, May.
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    6. Kristian Behrens & Gilles Duranton & Frédéric Robert-Nicoud, 2014. "Productive Cities: Sorting, Selection, and Agglomeration," Journal of Political Economy, University of Chicago Press, vol. 122(3), pages 507-553.
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    11. Eeckhout, Jan & Pinheiro, Roberto & Schmidheiny, Kurt, 2010. "Spatial Sorting: Why New York, Los Angeles and Detroit attract the greatest minds as well as the unskilled," CEPR Discussion Papers 8151, C.E.P.R. Discussion Papers.
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    18. repec:aea:aejapp:v:10:y:2018:i:4:p:1-42 is not listed on IDEAS
    19. Donald R. Davis & Jonathan I. Dingel, 2014. "The Comparative Advantage of Cities," NBER Working Papers 20602, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    urban accounting; generalized human capital accounting; skill distribution; welf;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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