Authors
Abstract
Since 1980, US wage growth has been concentrated in high-density locations, nearly doubling the wage-density elasticity across cities. We show that this urban-biased growth originates entirely at large, IT-intensive firms in the Business Services sector. We propose a simple explanation centered on the dramatic decline in IT prices over this period. First, a complementarity between IT capital and firm scale makes large firms benefit most from cheaper IT capital. Second, because large Business Services firms are concentrated in dense cities, falling IT prices generate urban-biased growth. Disciplining this mechanism with firm-level data, we find that the observed decline in IT prices accounts for approximately 75% of the increase in the wage-density gradient.
