Economic Diversity and the Resilience of Cities

François de Soyres, Simon Fuchs, Illenin O. Kondo and Helene Maghin

No 1426, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We develop a framework to assess how economic shocks affect local labor markets and worker welfare, with a focus on city-level economic diversity. Using detailed worker flow data across cities, sectors, and occupations, we construct theory-consistent welfare measures. Our approach combines a dynamic discrete choice model with a dual representation that captures both direct effects and the insurance value of local economic diversity. Applied to French labor markets, we find that diversification dampens the effect of negative shocks: both job-to-job moves and net inflows decline less in diverse cities than in concentrated ones. Overall, we document sizable welfare insurance gains from local economic diversity.

Keywords: sufficient statistic; labor flows; concentration; economic diversity; welfare (search for similar items in EconPapers)
JEL-codes: J21 J61 J62 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2025-12-12
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https://www.federalreserve.gov/econres/ifdp/files/ifdp1426.pdf Full text (application/pdf)

Related works:
Working Paper: Economic Diversity and the Resilience of Cities (2025)
Working Paper: Economic Diversity and the Resilience of Cities (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:102438

DOI: 10.17016/IFDP.2025.1426

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