Economic Diversity and the Resilience of Cities

RePEc Short ID: pde1223
ORCID iD: 0000-0003-4785-4487

Fuchs, Simon; Kondo, Illenin O.; Maghin, Helene; de Soyres, Francois

doi:10.17016/IFDP.2025.1426

Working Paper

Economic Diversity and the Resilience of Cities

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.

JEL Classification: J61; J62; J21;

https://doi.org/10.17016/IFDP.2025.1426