Cognitive Hubs and Spatial Redistribution

84 Pages Posted: 22 Oct 2019

See all articles by Esteban Rossi-Hansberg

Esteban Rossi-Hansberg

Princeton University

Pierre-Daniel G. Sarte

Federal Reserve Bank of Richmond

Felipe Schwartzman

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: 2019-09-25

Abstract

In the U.S., cognitive non-routine (CNR) occupations associated with higher wages are disproportionately represented in larger cities. To study the allocation of workers across cities, we propose and quantify a spatial equilibrium model with multiple industries that employ CNR and alternative (non-CNR) occupations. Productivity is city-industry-occupation specific and partly determined by externalities across local workers. We estimate that the productivity of CNR workers in a city depends significantly on both its share of CNR workers and total employment. Together with heterogeneous preferences for locations, these externalities imply equilibrium allocations that are not efficient. An optimal policy that benefits workers equally across occupations incentivizes the formation of cognitive hubs, leading to larger fractions of CNR workers in some of today's largest cities. At the same time, these cities become smaller to mitigate congestion effects while cities that are initially small increase in size. Large and small cities end up expanding industries in which they already concentrate, while medium-size cities tend to diversify across industries. The optimal allocation thus features transfers to non-CNR workers who move from large to small cities consistent with the implied change in the industrial composition landscape. Finally, we show that the optimal policy reinforces equilibrium trends observed since 1980. However, these trends were in part driven by low growth in real-estate productivity in CNR-abundant cities that reduced welfare.

Keywords: occupations, congnitive non-routine, cities

Suggested Citation

Rossi-Hansberg, Esteban and Sarte, Pierre-Daniel and Schwartzman, Felipe, Cognitive Hubs and Spatial Redistribution (2019-09-25). FRB Richmond Working Paper No. 19-16. Available at SSRN: https://ssrn.com/abstract=3473122

Esteban Rossi-Hansberg (Contact Author)

Princeton University

22 Chambers Street
Princeton, NJ 08544-0708
United States

Pierre-Daniel Sarte

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Felipe Schwartzman

Federal Reserve Banks - Federal Reserve Bank of Richmond

P.O. Box 27622
Richmond, VA 23261
United States

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