Skilled Scalable ServicesThe New Urban Bias in Recent Economic Growth
Fabian Eckert Sharat GanapatiUCSD Georgetown
Conor WalshPrinceton
DISCLAIMER:“Any opinions and conclusions expressed herein are those of the author and do notnecessarily represent the views of the U.S. Census Bureau. All results have been
reviewed to ensure that no confidential information is disclosed.”
Growth in the Service Economy
• Wage gaps between rich+poor U.S. cities tended to close historically
• Recent research: this stopped around 1980
• New Urban Bias in recent economic growth:7→ The largest cities saw persistently faster wage growth
• Today:I. Skilled Scalable Services mechanically account for New Urban BiasII. Tech price declines + scale advantages in cities offer unified explanation
The New Urban Bias in Recent Economic Growth
1980
2015
1
1.2
1.4
1.6
1.8
2
2.2
1 2 3 4 5 6 7 8 9 10
Rela
tive t
o D
ecile
1
Ave
rage W
age
Commuting Zone Population Density
What Are Skilled Scalable Services?
• Skill-intensive industries that create and communicate information
7→ ICT allows these industries to increase scale
• For each 2-Digit NAICS service industry compute:
7→ Skill Intensity: Share of college workers in workforce
7→ ICT Intensity: Share of software+hardware in total capital
• Skilled Scalable Services: highest ranking in both measures, today and back in 1980
Skilled Scalable Services 7→ SSS
Information
Finance, Insurance
Management of Companies
Professional Services
Health Care
Education
Arts, Recreation
Admin, Support
Wholesale Trade
Transportation, Warehousing
Retail
Accommodation, Food
Other Services
Real Estate
123456789
1011121314
Skill
Inte
nsity
Ran
k
1234567891011121314ICT Intensity Rank
New Urban Bias
1980
2015
1
1.2
1.4
1.6
1.8
2
2.2
1 2 3 4 5 6 7 8 9 10
Rela
tive t
o D
ecile
1
Ave
rage W
age
Commuting Zone Population Density
Skilled Scalable Services and the New Urban Bias
19802015
1980
2015
1
1.2
1.4
1.6
1.8
2
2.2
1 2 3 4 5 6 7 8 9 10
SSS
Non-SSS
Rela
tive t
o D
ecile
1
Ave
rage W
age
Commuting Zone Population Density
Fact: Rapid Wage Growth in SSS
1
1.2
1.4
1.6
1.8
2.0
1980 1990 2000 2010 2020
Skilled Scalable ServicesEducation + MedicalTrade + TransportArts + HospitalityOther ServicesResources + ConstructionManufacturing
Relat
ive to
198
0Av
erag
e W
age
Fact: Urban-Biased Wage Growth in SSS
.9
1
1.1
1.2
1.3
1.4
1.5
1.6
1 2 3 4 5 6 7 8 9 10
Skilled Scalable ServicesEducation + MedicalTrade + TransportArts + HospitalityOther ServicesResources + ConstructionManufacturing
Relat
ive to
Dec
ile 1
Wag
e G
row
th, 1
980-
2015
Commuting Zone Population Density
Fact: Rapid ICT Capital Adoption in SSS
0
.1
.2
.3
1980 1990 2000 2010 2020
Skilled Scalable ServicesEducation + MedicalTrade + TransportArts + HospitalityOther ServicesResources + ConstructionManufacturing
Softw
are
& Ha
rdw
are
(% o
f 201
2 $)
Tech
nolo
gy S
hare
of C
apita
l
Explaining the New Urban Bias
• Part I: Statistically, all of the urban bias is accounted for by SSS
• Part II: Structurally, what explains the urban bias of SSS growth?
• Starting Point: Successful literature on skill bias in recent growth
7→ Shock: Falling non-residential equipment prices
7→ Mechanism with two ingredients:◦ Skilled Labor/Capital complementarity◦ Skilled/Unskilled Labor substitutability
Can this Price Decline also Explain the New Urban Bias?
Model Input: Information Processing Equipment Prices
0
.2
.4
.6
.8
1
1980 1990 2000 2010 2020
Information ProcessingNon-residential EquipmentIndustrial EquipmentOther EquipmentTransportation Equipment
Rel
ativ
e to
CP
IP
rice
Inde
x
Result: SSS Wage Premium in Model and Data
Slope: 0.062
-.6
-.4
-.2
0
.2
.4
.1 1 10 100 1000 10000
19
80
-20
15
Rela
tive t
o M
ean C
ZD
iffere
ntia
l SS
S W
age G
row
th
1980 Population Density (pop/sqmi)
(A) Data
Slope: 0.081
-.6
-.4
-.2
0
.2
.4
.1 1 10 100 1000 10000
19
80
-20
15
Rela
tive t
o M
ean C
ZD
iffere
ntia
l SS
S W
age G
row
th
1980 Population Density (pop/sqmi)
(B) Model
Conclusion: The End of Shared Prosperity?
• The era of manufacturing was one of widely shared growth
7→ Across different education groups and regions
• SSS-led economic growth appears fundamentally different
7→ ”Superstar” regions+workers see rapid wage growth
• Flipside: Smaller places+less skilled workers may not benefit