Gentrification and the Rising Returns to Skill

Abstract

Suburbanization—thriving suburbs surrounding increasingly impoverished inner cities—dominated the US postwar urban landscape. However, already in the 1980s there were signs of urban rejuvenation, and the decades since have seen gentrification replace urban decay. In this paper, we argue that this trend reversal stems from the rise in hours worked by high‐income households, epitomized by the dual‐earner household replacing the breadwinner–housewife household. Using a Bartik‐style share shifter for skilled labour demand and analysing restricted‐use Census microdata covering the 27 largest US cities for the period 1980–2010, we find support for our hypothesis. ‘Low‐leisure‐high‐skill’ households showed a pronounced proclivity towards central city location and their estimated effect on housing prices can account for the observed emergence of centrality as an increasingly prized amenity.