The changing distribution of firms and workers across cities

This paper explores the changing distribution of firms and workers across cities. Cities have become increasingly specialized by function rather than sector, with business services, management and innovation concentrating in large urban areas and manufacturing dispersing across smaller cities instead. Big cities attract more educated workers, but the main factor distinguishing big cities is not so much who goes there but what happens to them as a result: locating in a big city allows firms to become more productive and workers to increase their earnings. And yet, as cities have become more different, they have also become more interdependent with important life-cycle patterns emerging. Many new firms and products start up in big diverse cities but eventually relocate, making up space for the next generation of new firms and products. Workers are often willing to pay the higher living cost of bigger cities not just to get higher wages today, but in the hope of learning and acquiring skills that, depending on their own characteristics and luck, they may exploit there or somewhere else.