THE NEW YORK TIMES On Friday morning, just before writing this newsletter, I spoke at the Regional Scientific Association conference in Alicante, Spain. Note the choice of preposition: “for,” not “in.” Due to family commitments I was unable to attend in person, so this was a presentation by Zoom at home something we have all come to know over the last three years.
The title of my talk was: “Is the New Economic Geography still alive and well in 2023?” The obvious subtext was: Is this still alive and well, given our ability to do what I did debate with people lead thousands of kilometers away?
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Some background: Economic geography the study of where people do things and why has been around for a long time. “New” economic geography (NEG) is a special approach to the topic that uses formal and limited economic models as much as possible. My most cited academic article, “Increasing Incomes and Economic Geography,” published in 1991, was one of the first works in this genre.
What is the point of formal modeling here? It contributes to clarity of thought and often produces insights that should be obvious. Perhaps the most important insight of the NEG is that there is always a tension between agglomerative forces, which tend to push activity, and centrifugal forces, which tend to disperse it. And technological changes could swing the economy in both directions, transforming the way we work and live.
Weekly commute time is reduced through hybrid work, meaning supercities continue to attract skilled workers Photo: EFE/Isaac Fontana
Thus, the second half of the 19th century saw an increase in largescale industrial production, which gave industry an incentive to concentrate near the largest markets, and railroads, which made it easier for distant farmers to feed urban populations The increase is therefore the “manufacturing belt,” a concentration of industry in the Northeast and interior Midwest of the United States.
In the 1920s, however, centrifugal forces took over. Road traffic made proximity to a railway hub less important, while electrification led to a transformation of factories huge factories were replaced by sprawling singlestory buildings that were not located in densely populated urban areas. This is how industry and prosperity spread. The industrial belt gradually dissolved and overall income disparities in the United States narrowed over time.
In some ways, the economic geography of the United States has become less interesting. And to be honest, the first NEG literature had a bit of a retro, almost steampunk feel to it, focusing on things like the rise of the production belt and the emergence of local production clusters like Troy’s detachable collar and cuff industry in New York. There was also great interest in China, whose rise as an industrial superpower was accompanied by the growth of industrial clusters reminiscent of those that dominated America in the 1900s.
But wait, the story isn’t over yet.
Around 1980, the forces shaping economic geography changed again with the emergence of a knowledge economy. Technologyintensive companies, whether or not they were explicitly in the technology sector, wanted access to a large pool of highly skilled workers, which often meant locating in large coastal metropolitan areas. Increasing employment opportunities in these areas attracted even more skilled workers, further widening regional disparities.
In some charts you can see the reversal of fortune. Look at the relationship between per capita income in Mississippi, which has historically been one of the poorest and least educated states in America, and income in Massachusetts, which has always been at the top.
The difference between these states decreased sharply between the 1920s and 1980s; At least in terms of location, the American economy seemed increasingly on par. However, this convergence reversed after 1980.
A Brookings Institution study approached this question from a different perspective, analyzing the dominance of a group of “superstar” cities. It became apparent that these cities were rapidly distancing themselves from the rest of the country.
And while large coastal metropolitan areas expanded, large swaths of the United States—particularly what some economists call the “eastern heartland”—left behind.
Then came Covid19.
In some months of 2020, it appeared that population density itself could be an important source of contagion risk. However, as we learned more about the disease, and especially after vaccines became available, this concern disappeared.
But Covid has done something else. Remote work has been technologically possible for some time now that large numbers of people have had access to highspeed internet. However, this option was only used when fears of infection led to much work being moved remotely. Once this happened, remote work reached critical mass: millions of workers learned how to interact online and found their colleagues doing the same. And in general, they liked it for obvious reasons: no commute, easier worklife balance, and so on.
As a result, although life has returned to prepandemic normality in many respects, many people are still working from home and office utilization remains low.
So does this mark the start of a sustained decline in “superstar” cities? I do not think so.
While remote work is clearly here to stay, there’s a big difference between fully remote work, where you never go into the office, and hybrid work, where you only work from home two or three days a week .
Fully remote work can be done from anywhere, and it is expected that a significant number of fully remote workers will move to smaller cities that offer urban amenities such as walkable centers. However, early indications suggest that fully remote work will continue to be a relatively small niche of the workforce. My observation is that both employers and employees are increasingly recognizing, at least for a while, the value of the informal interactions that come with coming into the office.
And hybrid workers still have to live within the commuter range of a major metropolitan area.
In fact, the rise of hybrid work could amplify the advantages of superstar metropolises or perhaps, more accurately, reduce one of their key disadvantages. Finally, one of the biggest problems with working in a place like New York City is the time and expense of commuting. Hybrid workers don’t have to commute as much as fulltime office workers. Alternatively, they can take time off from work and get cheaper housing while traveling longer distances in fewer days.
So will new technologies eliminate the advantage that big cities have gained over the last generation? Probably not. It could lead to big changes in the internal structure: what do we do with all the excess office space? However, at this point, I do not believe that we will see another historic shift in the geography of the economy.