The Urban Wage Premium is Disappearing in U.S. Micropolitan Areas
12 Pages Posted: 31 May 2020 Last revised: 30 Jun 2021
Date Written: May 13, 2020
A key driver of urbanization is the pursuit of economic opportunities in cities. One such opportunity is the promise of higher wages in larger cities, a phenomenon known as the urban wage premium. While an urban wage premium has been well-documented among U.S. metropolitan areas, little is known about its existence among micropolitan areas, which represent an important link between rural and dense urban areas. Here we measure the power law scaling coefficient of aggregate annual wages versus workforce for both U.S. metropolitan and micropolitan areas over a 35-year period. We take this coefficient to be the magnitude of the urban wage premium within a type of urban area and find the relationship is superlinear in all years for both area types. While both areas once had similar wage premiums, the premium in micropolitan areas has declined in the era of globalization while the premium across metropolitan areas has generally increased. This growing gap between micropolitan and metropolitan wage premiums is highly correlated with a divergence in voting behavior, with micropolitan voters having become increasingly conservative. Finally, we speculate that if urban dwellers respond to the COVID-19 crisis by migrating, the trends we describe may possibly change significantly.
Keywords: urban scaling, urban wage premium, power law, urban-rural divide, globalization
JEL Classification: J31, R10, O40, O51
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