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.

Fig 1. Scaling of total wages versus total employment.

Power law regressions for four sample data sets are presented: Metropolitan and micropolitan areas for 1990 and 2018. The scaling coefficients determined in each regression correspond to single data points in Fig 2.

Fig 2. Metropolitan vs. micropolitan wage premium 1984–2020.

We take the power function exponent β of log(wages) vs. log(employment) to be a measure of the urban wage premium for each area type. Wages here are not adjusted for regional differences in cost of living. See Supplemental Information for full table of results with confidence intervals.

Fig 3. Cost of living effect on the metropolitan urban wage premium.

When adjusted for local cost of living, scaling coefficients of log(wages) vs. log(employment) is suppressed by an average of 0.034 in all years compared. Cost of living factors, taken from [20], were published only for metropolitan statistical areas and only for years 2008–2019 at the time of our study.

Fig 4. Metropolitan-micropolitan divergence of wage premium and presidential voting behavior.

Here we plot only the differences between two attributes of metropolitan and micropolitan areas during presidential election years 1984–2020. The red line plots the metropolitan scaling coefficients minus the micropolitan scaling coefficients from Fig 1. The blue line plots, for presidential elections, the percentage of total votes in micropolitan areas that were for the Republican candidate minus the same percentage in metropolitan areas. As the gap between metropolitan and micropolitan wage premiums has increased since the late 1990s, so too has the difference in percent of votes for the Republican presidential candidate (N = 10, R2 = 0.91, p < 0.001).