Spatial polarization

We document the emergence of spatial polarization in the U.S. during the 1980-2008 period. This phenomenon is characterized by two facts: i) employment polarization is stronger in larger relative to smaller cities and it is mainly driven by heads rather than hours; and ii) while the skill distribution of cities is remarkably similar across city-size until 1980, after that date larger cities experience a faster increase in the share of both high- and low-skilled workers and a faster decline in the share of middle- skilled ones, i.e. the skill distribution of larger cities becomes “fatter” with respect to smaller cities. We quantitatively evaluate the role of technology in generating these patterns by using a spatial general equilibrium model, and find that faster skill-biased technological change in larger cities can account for a substantial fraction of spatial polarization in the U.S. Counterfactual excercises suggest that the differential increase in the share of low-skilled workers across city size is due, in similar proportions, to both the large demand by high-skilled workers for low-skilled services, and the higher complementarity between low- and high-skilled workers in production, relative to middle-skilled.