in the mid-1980s, 29 metropolitan areas that contained 45% of the country’s jobs were home to half of the national increase in companies after an earlier recession.
Now look at what happened after the painful 2007-09 economic downturn. The aforementioned five metro areas [New York, Miami, Los Angeles, Houston, and Dallas] housed half of the nation’s net increase in new firms and accounted for 17% of employment between 2010 and 2014. Left behind are thousands of small towns and rural areas that stitch together much of America.
She cites a new report, Dynamism in Retreat. I recommend checking out the report, and in particular the section “How did we get here?”
I think it is important to keep in mind that this is a global phenomenon. Commenter Handle has convinced me to consider a scenario in which wealth becomes more highly concentrated in a few key cities.
In traditional economic terms, think of an economy consisting of three sectors. One sector is monopolistically competitive. A second sector is protected somewhat from competition by licensing rules. The third sector consists of new natural monopolies.
Monopolistic competition is what you see as you drive along a road with strip malls. The nail salons, restaurants, and small financial services firms operate on low profit margins, because entry is easy.
The license-protected sector is where you find medical professionals, teachers, and others where credentials are required. If you can obtain a license and you are willing to work long hours, you can make a lot of money in some of these occupations. But nothing spectacular.
The spectacular profits come from the natural monopolies. These are the software-driven firms that exploit network scale advantages.
For a would-be natural monopolist, the difference between success and failure is so dramatic that the savings that might come from setting up in a low-cost area seem trivial. Better to locate in one of the high-growth cities where the best talent can be found.
As the seekers of natural monopoly gravitate toward big cities, the licensed professionals and the monopolistic competitors follow, because that is where spending on services is high. Tax revenue is high there also, which helps to generate government jobs.
The difference between the few winning cities and the loser regions is widened by self-selection. Talented, achievement-oriented people move to the big cities, and they leave the loser regions.