Density and Employment Resilience

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"Density and Employment Resilience"

(cc photo by dno1967b)

Brookings’ Emily Garr has an interesting finding, namely that unemployment has grown more in suburbs than cities during the recession. Specifically, “Only 14 metropolitan areas saw the number of unemployed increase in their primary city or cities more than in their suburbs, out of the 99 metro areas analyzed.”

Logistically, this is a conundrum for economically hit cities. The logistics of providing infrastructure and social services are much easier in denser places than less dense ones, so suburbs will find it harder to cope with a downturn than a city would. So it’s bad for the country to see the downturn more concentrated in suburban jurisdictions. But this also of course raises the question of why this pattern would exist.

My half-baked notion is that it has to do with the economics of the personal service industries that account for a large and growing share of employment. Basically here as elsewhere, labor is more efficient when people specialize. And here as elsewhere, the division of labor is limited by the extent of the market. Higher density areas feature a larger, deeper market and thus more ability to take advantage of the productivity benefits of specialization and niche tastes. And better information technology has made it cheaper and easier for people to find out about such products—in effect Google, Facebook, and Twitter serve as force multipliers for reviews and word of mouth—at the same time as we’ve in effect seen regress in transportation technology. Consequently, we’re seeing differential productivity growth in high- and low-density places, making the labor market in high density areas more resilient.

The key thing here is that arbitrary tastes make a big difference. If you imagine two hair stylists, one doesn’t need to be “better” than the other for it to be the case that some people prefer one over the other. If they both work in a neighborhood that’s dense enough to support two hairstylists, then each will be better matched with customers than they would if they were in separate lower-density neighborhoods and their productivity will rise.

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