Income Segregation and Rise of the Knowledge Economy

Abstract

We analyze the effect of the rise of knowledge-based activities on spatial inequality within U.S. cities. We exploit the network of patent citations to instrument for local trends in innovation. Innovation intensity is responsible for 14% of the overall increase in urban segregation between 1990 and 2010. This effect is mainly driven by the clustering of residents and workers in knowledge-based occupations. We develop and estimate a spatial equilibrium model to quantify the contribution of productivity and residential externalities in explaining the observed patterns. Endogenous amenities account for about half of the overall effect on the sorting of residents.

JEL Classification: O15, O33, R11