Full Citation

Title: The Geography of Business Dynamism and Skill Biased Technical Change

Citation Type: Working Paper

Publication Year: 2022

ISBN:

ISSN:

DOI: 10.20955/wp.2020.020

NSFID:

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Abstract: This paper shows that the growing regional disparities in the U.S. since 1980 can be explained by firms endogenously responding to a skill-biased technology shock. With the introduction ofa new skill-biased technology that is high fixed cost but low marginal cost, firms endogenously adopt more in big cities, cities that offer abundant amenities for high-skilled workers, and citiesthat are more productive in using high-skilled labor. In cities with more adoption, small and unproductive firms are more likely to exit the market, increasing the equilibrium rate of turnoveror business dynamism—a selection effect similar to Melitz (2003). Differences in technology adoption and selection account for three key components of the growing regional disparities known as the Great Divergence: (1) big cities saw a larger increase in the relative wages and supply of skilled workers, (2) big cities saw a smaller decline in business dynamism, and (3) firms in big cities invest more intensively in Information and Communication Technology (ICT).

Url: https://doi.org/10.20955/wp.2020.020

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Authors: Rubinton, Hannah

Series Title:

Publication Number: 2020-020D

Institution: Federal Reserve Bank of St. Louis W

Pages: 1-59

Publisher Location:

Data Collections: IPUMS USA

Topics: Labor Force and Occupational Structure, Land Use/Urban Organization

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