Original title: How an Economy Shrinks in Space: Concavity-on-Jobs and Upward Consolidation under Demographic Decline
Tomoya Mori, Miki Ogawa · September 2026
When a country's population shrinks, the overall economy seems to keep all its industries, just with slightly smaller teams. But regional cities experience something harsher: whole industries vanish completely. The researchers looked at cities to understand this process. Each industry needs a minimum city population to survive. Because basic industries share very low population requirements, small cities quickly drop below many thresholds at the same time if they lose just a few people. As a result, small cities lose entire business sectors rapidly, while large cities lose only a few specialized fields. These lost industries consolidate upward into bigger cities. This leaves local workers with lower-paying jobs. To earn back their lost wages, workers migrate up to the apex city that keeps every industry. Using Japanese worker data, the study proves this migration pressure drives young people toward Tokyo.
Imagine a town with several stores—a bakery, a hardware store, a bookstore. Each store needs a certain number of customers to stay open. As the town's population shrinks, the bookstore closes first because it needs the most customers. In this paper, industries are like those stores, and as cities shrink, entire industries disappear and consolidate upward to the largest city that can support them.
As populations decline, small cities lose not just jobs but entire industries—forcing workers to accept lower pay locally or move to the largest city. This concentrates economic opportunity in one place, hollowing out regions. Understanding these dynamics helps anticipate which cities will collapse and how policy might ease the transition.
The abstract doesn't say explicit limitations, but the analysis is specific to Japan (two decades ahead of the OECD), focuses on young workers, and uses a wage regression that may not establish causality. Findings may not generalize to countries at earlier stages of demographic decline or to older workers.
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How an Economy Shrinks in Space: Concavity-on-Jobs and Upward Consolidation under Demographic Decline — Tomoya Mori, Miki Ogawa
Abstract licence: CC0
Explanation generated by Synthesis from the abstract — it is not the original paper. This is a preprint, so it hasn't necessarily been peer reviewed.