Reflections on David Autor's presentation at the AEA annual meeting

At this year’s AEA annual meeting in Atlanta, David Autor gave a lecture on the changing geography of work. His main contribution was to disaggregate employment by skill level or education and show interesting trends in the location and wages of jobs. Here is one such figure:

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The four graphs show a relatively consistent urban wage premium over time for workers with a college education, but a collapse in the urban wage premium for workers with no college. The near - constancy of wages in 2015 across all population densities for workers with low education actually hides some heterogeneity: men and women with only a high school education experience a small urban wage premium if they have mid-skill jobs, while those who have low-skill jobs experience no urban wage premium.  What are mid-skill jobs? They are primarily production, clerical, administrative and sales jobs,. and they have been vanishing from the economy.

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Much ink has been spilt over declining geographic mobility in the US. Some observers place blame on the rise of occupational licensing. A hairdresser in rural Tennessee won’t just move to San Francisco to cut hair if becoming a hairdresser in California requires a significant investment in time and money to obtain a license. Others (see Hsieh and Moretti, 2015) blame housing regulations, which push up rents in productive cities, making them too expensive for potential newcomers. If only the rural Tennessean hairdresser could afford to move to SF, she might experience an increase in pay, living standards and opportunity.

The data presented by David Autor suggest that moving to San Francisco will do very little to help the Tennessean hairdresser. Low-skilled workers stand to gain very little, if anything, by moving from a rural area to an urban area even if the cost of living were the same in both areas. Only highly-skilled workers capture wage gains by moving to cities. Furthermore, the data suggests that, while there might be significant spillovers among high-skilled workers who live in the same urban area, there are little, if any, spillovers from high-skilled to low-skilled workers within an urban area. The tech workers in San Francisco, the financiers in New York, and the consultants in Washington are not pulling up the wages of the low-skilled workers in their cities.

Furthermore, if housing regulations are relaxed and rents decrease somewhat, we should expect the first people to move into cities to be the highly-skilled, because they stand to gain the most from the move. This will likely not reduce inequality in urban areas. If San Francisco can be made to have as cheap rents as rural America (and this seems impossible), it may become a rational choice for low-skilled workers to move to the city. Otherwise, San Francisco will continue to be populated largely by the rich.

Autor’s presentation can be accessed here.