The urban wage premium is disappearing in U.S. micropolitan areas.

Abstract

A key driver of urbanization is the pursuit of economic opportunities in cities. One such opportunity is the promise of higher wages in larger cities, a phenomenon known as the urban wage premium. While an urban wage premium has been well-documented among U.S. metropolitan areas, little is known about its existence in micropolitan areas, which represent an important link between rural and dense urban areas. Here we measure the power law scaling coefficient of annual wages versus employment for both U.S. metropolitan and micropolitan areas over a 37-year period. We take this coefficient to be a quantification of the urban wage premium for each type of urban area and find the relationship is superlinear in all years for both area types. Though both area types once had wage premiums of similar magnitude, the wage premium in micropolitan areas has steadily declined since the late 1980s while in metropolitan areas it has generally increased. This growing gap between micropolitan and metropolitan wage premiums is ongoing in parallel to other diverging characteristics, such as inequality and voting behavior, suggesting that our result is part of a broader social, cultural, and political divergence between small and large cities. Finally, we speculate that if urban residents respond to the COVID-19 crisis by migrating, the trends we describe may change significantly.