Gentrification is "still somewhat of a mystery," the economist behind a new paper says, but it's partly driven by the increasingly long hours of higher-income workers who move to city centers to cut commutes and subsequently demand less crime and more restaurants.
The paper, forthcoming in American Economic Journal: Economic Policy, traces a trend that began in the mid-1980s: "Low-skilled" workers used to work more hours than "high-skilled" workers, but the pattern reversed by 1990, when working longer hours started becoming more common among the "high-skilled" — those in occupations that tend to attract more college graduates. Low-wage workers are now much less likely to work long hours than high-wage workers, a trend that has coincided with the rise in gentrification.
"In the old days, in the '60s, the low-wage workers were much more likely to work long hours — more than half of them work at least 50 hours a week, but that number has gone down," said Yichen Su, author of the paper and a research economist at the Federal Reserve Bank of Dallas. "For the top wage earners in the '60s, they were chilling. Since the '80s, that number jumped up. I thought that was interesting."
With less leisure time and "more valuable" time in general, a small group of initial workers was drawn into the city to live closer to the office. Once their presence had "improved" the city center to a degree that it became attractive to a second wave of high-income people, they, too, moved to the city. According to the models used in the research, the changing value of time for higher-income people explains 10% of gentrification. Clearly, though, time did not explain everything: While more educated workers were moving to the city, their jobs were not centralizing.
Su said he was expecting a number higher than 10%.
"In the back of my mind, I always thought the value of time is really important," he said. "But I just couldn't get it, and I finally convinced myself, OK, the direct effect is probably really small."
Eventually, Su realized it made sense. "Imagine this: Everything is fixed, like in the '80s. Right now, New York City is still dangerous, Times Square is still very sleazy. The only thing that's changed is your value of time is high. Do you really think, in New York City, are we really going to see the kind of gentrification that we see?"
Gentrification, as defined in this paper, is the process in which incomes and home values in the central city grow faster than incomes and home values in the suburbs. There are accompanying hallmarks: Rich, educated people move into the city center; lower-income workers are increasingly forced to move out of the city center because of rising housing costs; as new rich residents demand more "amenities," they appear in the city — restaurants, retail stores and less violent crime; and the amenities then draw in more rich people.
Notably, Su found that overall commute times increased between 1980 and 2010, but they grew much more slowly for higher-wage workers than they did for lower-wage workers. People with less money were less likely to be able to afford short commutes.
For the study, Su estimated the "long-hour premium" for each occupation, using census data from 1990 and American Community Survey data from 2007 to 2011. The long-hour premium is a concept developed by Peter Kuhn and Fernando Lozano, describing how much return workers get for working more hours. For many high-wage workers, the returns are substantial; for low-wage hourly workers, the returns are much lower. For each occupation, Su found the spatial distribution of jobs reported in census Zip Code Business Patterns in 1994 and 2010. He estimated driving commute times using Google Distance Matrix API and data from the National Household Travel Survey.
In the model, only 10% of gentrification was due to the increased value of time, while 40% was the result of amenity changes and rent. In the model, an area where more educated people were moving was considered to have greater amenities.
In a separate analysis, Su teased out what happened to areas with a changing "skill ratio" — the ratio of people in jobs with more college graduates to people in jobs with less college graduates. He found that in municipal areas with a higher rate of educated people moving in, violent crime rates declined more, although the ratio had no significant effect on property crime rates.
And while the coronavirus pandemic has left many higher-income and "high-skilled" workers working from home, Su said he expects gentrification to continue apace post-pandemic.
"A lot of people's social capital is starting to depreciate and deplete, and you can't replenish it very effectively by staying at home, and that starts to hurt people's productivity. So I think in a few months, we're going to see more and more of that concern, and," he said, laughing, "more and more pressure to go back to the office and hang out with each other."
The paper, "The rising value of time and the origin of urban gentrification," forthcoming in American Economic Journal: Economic Policy, was authored by Yichen Su, Federal Reserve Bank of Dallas.