The Positive Feedback Loop of Urbanization

Market Failure

There is something of a debate about why people make more money in cities, and whether at the individual level it’s wisest to make more money in a higher-cost city or less money in a lower-cost city.  Emily Badger has an excellent piece on economist Rebecca Diamond’s work on the growing educational/economic divide across American cities.  Diamond found (unsurprisingly, if you’ve ever compared Boston and Detroit) that places with more college graduates are expensive, but tend to be nicer and to offer higher-paying jobs.  In short, even after you account for the higher cost of living big, well-developed cities tend to come out ahead.  That doesn’t surprise me, but this did – places with higher concentrations of college graduates tend to pay college graduates more!

This suggests that the urbanist case is actually right – that people are more productive in cities than rural areas.  There are two countervailing forces that…

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