NBER: Data Centers and Local Economies in the Age of AI

A new NBER study finds that data center expansion in U.S. counties boosts total employment, construction jobs, house prices, and electricity prices. Researchers used facility-level data and shift-share instruments to show that data centers create measurable local economic activity while also raising electricity costs. The findings highlight a policy tradeoff between capital investment and specialized employment gains versus increased demand for power and grid capacity.

Data Centers and Local Economies in the Age of AI: A Shift--Share Approach Data centers are the physical infrastructure behind cloud computing, artificial intelligence, and enterprise software. The rapid diffusion of artificial intelligence AI is intensifying demand for compute, accelerating investment in data centers, and raising concerns about the local economic and environmental footprint of these facilities. Their expansion creates a local policy tradeoff. A data center can bring capital investment, construction activity, and specialized employment, but it can also increase demand for electricity, land, and grid capacity. This paper studies these effects at the U.S. county level. We assemble a facility-level panel of global data centers with precise coordinates, scale metrics, and annualized revenue. We map facilities to U.S. counties and combine them with County Business Patterns, county-level IRS income, county-level house prices, and electricity prices. To address endogenous siting, we instrument for data center growth using two shift-share instruments, which leverage pre-existing proximity to InterTubes long-haul fiber nodes and the 1980 county share of U.S. urban college population as shares, and both Chinese and rest-of-the-world data center revenue growth as shifts. The IV estimates show positive effects on total employment, data-processing employment, construction employment, establishments, house prices, and electricity prices at different horizons after data center growth. We also find positive effects on tax returns, adjusted gross income, and wages, while annual payroll responds less robustly. The results suggest that data centers create measurable local activity, increase house prices, and affect local electricity markets through higher prices. - - Copy CitationFernando E. Alvarez, David Argente, Joyce Chow, and Diana Van Patten, "Data Centers and Local Economies in the Age of AI: A Shift--Share Approach," NBER Working Paper 35194 2026 , https://doi.org/10.3386/w35194.Download Citation