The neighborhood or the region? Reassessing the density–wage relationship using geocoded data

I analyze the effects of sub-city-level density of economic activity on wages. Using a geocoded dataset on employment and wages in the city areas of Sweden, the analysis is based on squares representing “neighborhoods” ( $$0.0625\,\hbox {km}^{2})$$ 0.0625 km 2 ) , “districts” ( $$1\,\hbox {km}^{2})$$ 1 km 2 ) , and “agglomerations” ( $$10\,\hbox {km}^{2})$$ 10 km 2 ) . The wage-density elasticity depends on spatial resolution, with the elasticity being highest in neighborhood squares, where a doubling of density is associated with wage increases of 1.2 %, or roughly the size of the elasticity for region density. Moving from a mean-density neighborhood to the densest neighborhood would on average increase wages by 9 %. The results are consistent with (i) the existence of a localized density spillover effect and (ii) quite sharp attenuation of human capital spillovers. An implication of the findings is that if the data source is not sufficiently disaggregated, analyses of the density–wage link risk understating the benefits of working in dense parts of regions, such as the central business districts. Copyright Springer-Verlag Berlin Heidelberg 2014