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posted on 04 June 2017

Understanding Urban Decline

from the Richmond Fed

-- this post authored by Santiago Pinto and Tim Sablik

Over the past two centuries, the population of the United States has become increasingly concentrated in cities. In the 1800s, only 6 percent of people lived in urban areas. Today, nearly two-thirds of Americans live in cities, and these cities account for only 3.5 percent of available land in the country. Urbanization also is taking place around the globe. More than half of the world’s population lives in cities today, and the World Bank estimates that cities collectively will add another two billion people by 2045.

Not only is population in the United States concentrated in cities, the nation’s economic activity is as well. Large cities accounted for roughly 85 percent of the country’s gross domestic product (GDP) in 2010. Concentrating economic activity in this way produces a number of benefits. Places with higher population density exhibit faster growth in productivity and per-capita GDP. Cities are also wellsprings of innovation, accounting for a disproportionate share of new patents. Clearly, cities matter.

These benefits make it all the more puzzling that a number of prominent U.S. cities have experienced large population declines in recent decades. St. Louis, Detroit, Cleveland, and Pittsburgh, for example, each lost half or more of their populations between 1950 and 2010. Others, such as Baltimore, Chicago, and Minneapolis suffered smaller, though still substantial, population losses during the same period.

If these changes merely reflected shifts in population from one city to another more desirable or more productive city, there wouldn’t necessarily be any cause for concern. However, evidence suggests that urban population outflows have hurt some lower-income people who have been left behind. Declining city centers frequently exhibit high and persistent poverty rates. For instance, in Detroit and Cleveland, 40.3 percent and 36.2 percent of the population, respectively, were below the poverty line in 2015. Meanwhile, the average income of the surrounding suburbs has risen. In fact, the metropolitan statistical areas (MSAs) surrounding many declining cities have grown in population since 1950. For example, the Detroit and Baltimore MSAs each added more than one million people between 1950 and 2010. As city centers decline, those people and firms who can leave do, and those who cannot (frequently low-income, low-skilled households) are stuck with dimming economic prospects.

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Source media/richmondfedorg/ publications/research/annual_report/ 2016/pdf/ article.pdf

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