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Spatial Sorting and Inequality

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  • Rebecca Diamond
  • Juan Carlos Suárez Serrato

Abstract

This chapter examines the role of spatial sorting in shaping economic inequality in the United States. We first document the evolution of firm and worker sorting by skill level between 1980 and 2017. We highlight a shift since 2000, where both high-education workers and firms increasingly sort away from high-wage, high-rent areas. Throughout the entire time period, high-education workers continue to sort to high amenity areas. We then develop a spatial equilibrium model that incorporates idiosyncratic worker and firm sorting and discuss estimation techniques to identify model parameters. We review recent empirical advancements in spatial sorting, including firm and worker location choices and their interactions with housing policy. We conclude by outlining the model’s limitations and proposing directions for future research.

Suggested Citation

  • Rebecca Diamond & Juan Carlos Suárez Serrato, 2025. "Spatial Sorting and Inequality," NBER Working Papers 33609, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:33609
    Note: LS PE
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    JEL classification:

    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis

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