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Cities, matching and the productivity gains of agglomeration

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  • Andersson, Fredrik
  • Burgess, Simon
  • Lane, Julia I.

Abstract

The striking geographical concentration of economic activities suggests that there are substantial benefits to agglomeration. The nature of those benefits remains unclear, however. In this Paper we take advantage of a new dataset to quantify the role of one of the main contenders: the matching of workers and jobs. Using individual level data for two large US states we show that thicker urban labour markets are associated with more assortative matching between workers and firms. Another critical condition is required for this to generate higher productivity: complementarity of worker and firm quality in the production function. Using establishment level productivity regressions, we show that such complementarity is found in our data. Putting together the production and matching relationships, we show that production complementarity and assortative matching is an important source of the urban productivity premium.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 61 (2007)
Issue (Month): 1 (January)
Pages: 112-128

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Handle: RePEc:eee:juecon:v:61:y:2007:i:1:p:112-128

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Web page: http://www.elsevier.com/locate/inca/622905

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  1. Abowd, J.M. & Kramarz, F. & Margolis, D.N., 1995. "High-Wage Workers and High-Wage Firms," Cahiers de recherche 9503, Universite de Montreal, Departement de sciences economiques.
  2. Robert Shimer & Lones Smith, 2000. "Assortative Matching and Search," Econometrica, Econometric Society, vol. 68(2), pages 343-370, March.
  3. John Haltiwanger & C J Krizan & Lucia Foster, 1998. "Aggregate Productivity Growth: Lessons From Microeconomic Evidence," Working Papers 98-12, Center for Economic Studies, U.S. Census Bureau.
  4. Pieter A. Gautier & Coen N. Teulings, 2003. "An Empirical Index for Labor Market Density," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 901-908, November.
  5. Barbara Petrongolo & Christopher Pissarides, 2006. "Scale effects in markets with search," LSE Research Online Documents on Economics 2467, London School of Economics and Political Science, LSE Library.
  6. Burdett, Kenneth & Coles, Melvyn G, 1999. "Long-Term Partnership Formation: Marriage and Employment," Economic Journal, Royal Economic Society, vol. 109(456), pages F307-34, June.
  7. Fredrik Andersson & Harry J. Holzer & Julia I. Lane, 2002. "The interactions of workers and firms in the low-wage labor market," Longitudinal Employer-Household Dynamics Technical Papers 2002-12, Center for Economic Studies, U.S. Census Bureau.
  8. Enrico Moretti, 2003. "Human Capital Externalities in Cities," NBER Working Papers 9641, National Bureau of Economic Research, Inc.
  9. Wheeler, Christopher H, 2001. "Search, Sorting, and Urban Agglomeration," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 879-99, October.
  10. Becker, Gary S, 1973. "A Theory of Marriage: Part I," Journal of Political Economy, University of Chicago Press, vol. 81(4), pages 813-46, July-Aug..
  11. Duranton, Gilles & Puga, Diego, 2004. "Micro-foundations of urban agglomeration economies," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 48, pages 2063-2117 Elsevier.
  12. Kremer, M & Maskin, E, 1996. "Wage Inequality and Segregation by Skill," Working papers 96-23, Massachusetts Institute of Technology (MIT), Department of Economics.
  13. Roland Benabou, 1991. "Workings of a City: Location, Education, and Production," NBER Technical Working Papers 0113, National Bureau of Economic Research, Inc.
  14. Julia I. Lane & John C. Haltiwanger & James Spletzer, 1999. "Productivity Differences across Employers: The Roles of Employer Size, Age, and Human Capital," American Economic Review, American Economic Association, vol. 89(2), pages 94-98, May.
  15. Michael Kremer & Eric Maskin, 1996. "Wage Inequality and Segregation," Harvard Institute of Economic Research Working Papers 1777, Harvard - Institute of Economic Research.
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