Since 1980, economic growth in the U.S. has been fastest in its largest cities. We show that a group of skill- and information-intensive service industries are responsible for all of this new urban bias in recent growth. We then propose a simple explanation centered around the interaction of three factors: the disproportionate reliance of these services on information and communication technology (ICT), the precipitous price decline for ICT capital since 1980, and the preexisting comparative advantage of cities in skilled services. Quantitatively, our mechanism accounts for most of the urban biased growth of the U.S. economy in recent decades.
This paper previously circulated with the title "Skilled Tradable Services: The Transformation of U.S. High-Skill Labor Markets."