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Heterogeneous returns to knowledge exchange: Evidence from the urban wage premium

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  • Cunningham, Chris
  • Patton, Michaela C.
  • Reed, Robert R.

Abstract

We posit that some kinds of knowledge are harder to exchange remotely and thus certain types of workers trading in certain types of knowledge benefit more from close physical proximity to others. We first present a theoretical framework in which individuals randomly search for partners to exchange ideas, but that the returns to finding a partner are heterogeneous. In particular, some knowledge is more dependent on interpersonal exchange and most productive when shared with similar individuals. In this manner, we propose that agglomerative environments favor individuals with knowledge that is typically associated with “soft skills” where creativity and informal networking are important. We test this prediction using the most recent sample of the American Community Survey (ACS) in which college graduates are asked about their undergraduate major. Controlling for demographic and regional productivity effects, we find that the urban wage premium varies considerably across majors. In line with the predictions of our model, people with non-STEM majors appear to benefit more from locating within a city. In the spirit of our results for majors, we also find that terminal degrees associated with the mastery of any existing cannon of knowledge such as a J.D. or M.D. experience a smaller urban wage premium.

Suggested Citation

  • Cunningham, Chris & Patton, Michaela C. & Reed, Robert R., 2016. "Heterogeneous returns to knowledge exchange: Evidence from the urban wage premium," Journal of Economic Behavior & Organization, Elsevier, vol. 126(PA), pages 120-139.
    • Handle: RePEc:eee:jeborg:v:126:y:2016:i:pa:p:120-139
    DOI: 10.1016/j.jebo.2016.01.001
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    Cited by:

    1. Bruna Bruno & Marisa Faggini, 2021. "To be a STEM or not to be a STEM: Why do countries differ?," Growth and Change, Wiley Blackwell, vol. 52(3), pages 1535-1551, September.
    2. John V. Winters, 2017. "Do earnings by college major affect graduate migration?," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 59(3), pages 629-649, November.
    3. Winters, John V., 2014. "STEM graduates, human capital externalities, and wages in the U.S," Regional Science and Urban Economics, Elsevier, vol. 48(C), pages 190-198.
    4. Stuart Donovan & Thomas de Graaff & Henri L. F. de Groot & Carl C. Koopmans, 2024. "Unraveling urban advantages—A meta‐analysis of agglomeration economies," Journal of Economic Surveys, Wiley Blackwell, vol. 38(1), pages 168-200, February.
    5. Portillo, Javier E. & Wagner, Gary A., 2021. "Do cultural districts spur urban revitalization: Evidence from Louisiana," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 651-673.

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    More about this item

    Keywords

    Human capital; Wages; Agglomeration;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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