Occupational Matching and Cities

In this paper, I document that workers in larger cities have significantly more occupational options than workers in smaller ones. They are able to form better occupational matches and earn higher wages. I also note differences in the occupational reallocation patterns across cities. I develop a dynamic model of occupational choice that microfounds agglomeration economies and captures the empirical patterns. The calibration of the model suggests that better occupational match quality accounts for approximately 35% of the observed wage premium and a third of the greater inequality in larger cities.