Population Density and Its Impact on Local Economy Pre and Post COVID-19

Abstract

How new jobs requiring high skill can be notably beneficial for the overall employment of a local economy has been a long discussed topic in economic literature. Nevertheless, given the post COVID-19 breakout trend for increasing remote work, especially in the case of high-skilled workers, the beneficial effects may not be the same. This paper presents a two-sector spatial equilibrium search model that explains skill premium differences together with the pre and post COVID-19 unemployment rate patterns for high and low population density locations. This is accomplished through an idea exchange environment that draws highly paid workers, who, as their wage increases, consume more of the local goods and services, together. Post COVID-19, this situation changes to a degree, explaining the pattern reversal in unemployment rate, namely that unemployment is now greater in high population density locations.