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Wage inequality and the location of cities

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  • Farrokhi, Farid
  • Jinkins, David

Abstract

We document that isolated cities have lower skill wage premia in American census data. To explain this correlation and other correlations between population and wages, we build an equilibrium empirical model that incorporates high and low-skill labor, costly trade, and both agglomeration and congestion forces. Our paper bridges the gap between the economic geography literature which abstracts from inequality, and the spatial inequality literature which abstracts from geography. We find that geographical location explains 16.5% of observed variation in the skill wage premium across American cities. We use our model to simulate counterfactual trade and technology shocks. Reductions in domestic trade costs benefit both skill groups but low-skill workers benefit more.

Suggested Citation

  • Farrokhi, Farid & Jinkins, David, 2019. "Wage inequality and the location of cities," Journal of Urban Economics, Elsevier, vol. 111(C), pages 76-92.
    • Handle: RePEc:eee:juecon:v:111:y:2019:i:c:p:76-92
    DOI: 10.1016/j.jue.2019.04.004
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    Cited by:

    1. Winters, John V., 2020. "Problem on the Plains: College Earnings Premiums in Small Metropolitan Areas," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 51(1), December.
    2. Farid Farrokhi, 2021. "Skill, Agglomeration, And Inequality In The Spatial Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(2), pages 671-721, May.
    3. Anthony Eisenbarth & Zhuo Fu Chen, 2022. "The evolution of wage inequality within local U.S. labor markets," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 56(1), pages 1-25, December.
    4. Michiel Gerritse & Andrea Caragliu, 2022. "Import competition and domestic transport costs," Tinbergen Institute Discussion Papers 22-071/VIII, Tinbergen Institute.
    5. Constantin Bürgi & Nisan Gorgulu, 2022. "The Impact of the Spatial Population Distribution on Economic Growth: Evidence from the United States," CESifo Working Paper Series 10008, CESifo.

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