Urban Inequality and Tech
How economists think about this relationship - and some policy questions that emerge from it
1We live in an urban world, and unless covid-19 changes everything, this trend is likely to continue. To explain why cities exist and grow, or decay, economists invoke benefits and costs. Cities provide economic benefits to businesses (access to markets of consumers, suppliers and labor, talented workforces, ideas and information, and lower transportation and transaction costs) that make them more productive. More productive companies can provide more economic opportunities to individuals, both in jobs and in higher salaries. Urban dwellers also receive other benefits, such as access to services (like more specialized health or top schools), cultural amenities (museums or theater plays) and social interactions (there are those who have described cities as marriage markets – ah, economists!).
But these benefits of agglomeration also come with downsides. We can talk of the 5 Cs of urban density: costs, congestion, crime, contagion, and contamination. Soaring demands to live or locate businesses in prime locations in cities result, for example, in higher housing costs. Flows of people moving in and out of cities produce congested roads, transit, and other public infrastructure. The inequalities, anonymity and frequent interactions happening in cities explain why levels of crime in urban areas are greater than in rural areas. Cities’ role as vectors of contagion seemed to be a concern of the past, but covid-19 has reminded us of the perils of urban living that was so present in times of the Black Death. Finally, the accumulation of polluting activities in cities make them a focus of air, soil, and water contamination.
The cost-benefit model, applied at the individual level, predicts than when the benefits of urban living outweigh its costs, people will continue to choose to live in cities. This is why Ed Glaeser says that cities don’t make people poor, but attract poor people, and therefore urban poverty “should not be judged relative to urban wealth, but relative to rural poverty.” As long as the aggregate benefits of urban living outweigh its costs, people will continue to flock to cities, and metropolises will keep on growing.
While useful, this model has important limitations. It does not care about how these benefits and costs are distributed among the population. Most importantly, it assumes individuals’ total choice freedom to move from one city to another. This is certainly not true. Moving entails not only monetary, but also emotional and informational costs. Sometimes higher than purely budgetary ones, and particularly burdensome for more vulnerable groups. The implication is clear, those who came into a city looking for a job may realize that the economic benefits do not compensate the costs of living in that city, but they are not able to move somewhere else. They find themselves in hard-to-escape urban poverty traps.
What has technology to do with this? First, technology can affect the relationship between costs and benefits. For example, new technologies can greatly reduce the negative impacts of living in a city by improving the quality of the water and air, enabling taller, denser, and cheaper buildings or opening job opportunities through affordable mass transit.
The technology and innovation driven economy also seems to be shaping the macro trends that determine where and how we live. Part of this story is what Enrico Moretti labelled the New Geography of Jobs, where a few areas concentrate the economic activity, the percentage of higher educated individuals and higher salaries. There is not only concentration in fewer areas, but more inequality within cities. In his 2019 Richard T. Ely Lecture at the American Economic Association Annual Meeting, David Autor pointed to the hollowing out of mid-skilled jobs in cities as a main driver of the labor polarization he had been documenting for so long. He summarized his argument in this interview quote:
Job polarization is caused by the unwinding of a distinctive feature of high-density metro areas, which was highly present in the postwar period and is now entirely gone. There were these occupations where noncollege workers did skilled work in metro areas: production work and clerical, administrative work. These were middle-skill jobs and they were much more prevalent in cities, urban areas, and metro areas than they were in suburbs and rural areas. But that began to decline in the 1970s and is now extinct. There’s nothing remaining of that. There’s just less and less mixing of high-skill and low-skill workers, because their jobs are no longer complementary. They’re no longer producing stuff jointly together.
And he gave two reasons for this:
One is, historically, manufacturing was an urban phenomenon. It had to be, because you needed access to transportation, good infrastructure, and so on. And then for clerical and administrative work, it’s because those occupations are inputs into the world of professionals, so they had to be where the high-skill professionals were.
This story is not new, and many academics and pundits have already commented on the economic and political implications of more unequal urban geographies. Much less has been written, however, about what this means for the relationship between technology and cities. The questions that emerge from this situation are plenty and deep. What type of technology-related middle-class jobs are needed? Do these need be performed in cities? Can they? And across geographies? Do we need additional mechanism for geographic redistribution? Within cities, what technologies are needed to remove barriers to benefits and to reduce the costs of urban living? What tools do (city) governments have to respond to these forces that are shaping cities so profoundly?
This is largely based on one of the sessions on the Sustainable Cities Course that I teach with Julio Lumbreras at the Harvard Extension School.