Income Segregation and the Rise of the Knowledge Economy

Abstract

We analyze the effect of the rise of knowledge-based activities on spatial inequality within U.S. cities, exploiting the network of patent citations to instrument for local trends in innovation. We find that innovation intensity is responsible for 20% of the overall increase in urban segregation between 1990 and 2010. This effect is mainly driven by the clustering of employment and residence of workers in knowledge-based occupations. We develop and estimate a spatial equilibrium model to quantify the contribution of productivity and residential externalities in explaining the observed patterns. Endogenous amenities account for two thirds of the overall effect. We illustrate the relevance of the model for policy analysis by studying the impact of four proposed projects for Amazon’s HQ2 on the structure of Chicago.