How local productivity growth affects workers near and far
One city’s boom can be felt across a nation
Chicago Booth – When big cities experience an economic boom, you expect an upsurge in wages and growth in those areas. But there’s some nuance: according to Chicago Booth’s Richard Hornbeck and University of California at Berkeley’s Enrico Moretti, one area’s surge particularly benefits low-skilled workers locally—and high-skilled workers elsewhere.
Using total factor productivity (TFP) as a measure of local productivity growth, Hornbeck Amount and Moretti analyzed two decades of data from major US cities to quantify the direct effects on people living in booming cities and the indirect effects on people elsewhere. Allowing for trade-offs between salary and cost-of-living increases, as well as unequal distribution of benefits across different groups, the researchers find that low-skilled workers gained the most from local productivity growth.
But gains extended further afield: a boom in San Diego or Los Angeles, say, was also felt in other cities. And high-skilled workers gained more from productivity growth in other cities. more>