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In this paper we use a general equilibrium model to show that two well known phenomena, i) the spatial sorting of workers with heterogeneous skills across U.S. metropolitan areas and ii) aggregate employment polarization in the U.S. are tightly linked and are both largely driven by the emergence of skill-biased technological change (SBTC). In particular, we aim at rationalizing together the following facts: 1) the skill distribution of workers is similar across metropolitan areas with different size between 1960 and 1980, while between 1980 and 2008 large cities display a higher fraction of both high- and low-skilled workers relative to small cities, which in turn display a higher fraction of medium-skilled; 2) aggregate employment polarization starts emerging in the 1980s and is more pronounced in larger cities relative to smaller ones over the 1980-2008 period; and 3) skill-biased technological change grows faster in larger metropolitan areas. We connect these facts in a spatial general equilibrium model and we assess the impact of SBTC and other competing channels on the dynamics of spatial sorting and employment polarization.
