October 25th, 2014
from the Philadelphia Fed
A study provides new insight into how both supply and demand for high-skilled workers increase relative to low-skilled workers in cities and how the demand for high-skilled workers increases faster with city size relative to supply. While tracking decreasing demand for skilled workers in different industries, the study finds that within-industry changes in skilled-labor shares drive increased demand for educated workers in cities.
The share of high-skilled workers in U.S. cities is positively correlated with city size, and this correlation strengthened between 1980 and 2010. Furthermore, during the same time period, the U.S. economy experienced a signicant structural transformation with regard to industrial composition, most notably in the decline of manufacturing and the rise of high- skilled service industries.
The estimates imply that both supply and demand of high-skilled labor have increased over time in big cities. In addition, demand for skilled labor in large cities has increased somewhat within all industries. However, this aggregate increase in skill demand in cities is highly concentrated in a few industries. The finance, insurance, and real estate sectors alone account for 35 percent of the net change over time.