Economic Diversity and the Resilience of Cities

Abstract

We show how local worker flow adjustment margins yield a theory-consistent sufficient statistic approximating the welfare effects of local shocks. Furthermore, we isolate a city’s insurance value as this approximation’s second-order term. Leveraging rich labor flows data across occupations, industries, and cities in France, we estimate spatial and non-spatial flows responses to local labor demand shocks. Less economically diverse French cities experience deeper contractions in gross outflows following negative shocks. In contrast, more economic concentration begets a modestly larger increase in gross worker flows following positive shocks. Altogether, we uncover a sizable welfare insurance gains from local economic diversity.

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