IT and Urban Polarization

• Authors: Jan Eeckhout, Christoph Hedtrich and Roberto Pinheiro
• American Economic Journal: Macroeconomics, Vol. 18, No. 1, 223 - 259, January 2026

We show that differential IT investment across cities has been a key driver of job and wage polarization since the 1990s. Using a novel dataset, we establish two stylized facts: IT investment is highest in firms in large and expensive cities, and the decline in routine cognitive occupations is most prevalent in large and expensive cities. We propose and estimate a model and find that the fall in IT prices helps explain the wage gap between routine and nonroutine cognitive jobs, as well as the shift in employment away from routine cognitive toward nonroutine cognitive jobs.