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Cities, Matching and the Productivity Gains of Agglomeration

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  • Fredrik Andersson
  • Simon Burgess
  • Julia Lane

Abstract

The striking geographical concentration of economic activities suggests that there are substantial benefits toagglomeration. However, the nature of those benefits remains unclear. In this paper we take advantage of a newdataset to quantify the role of one of the main contenders - the matching of workers and jobs. Using individuallevel data for two large US states we show that thicker urban labour markets are associated with moreassortative matching between workers and firms. Another critical condition is required for this to generatehigher productivity: complementarity of worker and firm quality in the production function. Usingestablishment level productivity regressions, we show that such complementarity is found in our data. Puttingtogether the production and matching relationships, we show that production complementarity and assortativematching is an important source of the urban productivity premium.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0648.

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Date of creation: Sep 2004
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Handle: RePEc:cep:cepdps:dp0648

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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Keywords: Urban Productivity; Matching; Agglomeration;

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  1. 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.
  2. 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..
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  4. 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.
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  8. Enrico Moretti, 2003. "Human Capital Externalities in Cities," NBER Working Papers 9641, National Bureau of Economic Research, Inc.
  9. 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.
  10. Kremer, M & Maskin, E, 1996. "Wage Inequality and Segregation by Skill," Working papers 96-23, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. Shimer, R. & Smith, L., 1998. "Assortive Matching and Search," Papers 98-09, Michigan - Center for Research on Economic & Social Theory.
  12. Wheeler, Christopher H, 2001. "Search, Sorting, and Urban Agglomeration," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 879-99, October.
  13. Michael Kremer & Eric Maskin, 1996. "Wage Inequality and Segregation," Harvard Institute of Economic Research Working Papers 1777, Harvard - Institute of Economic Research.
  14. 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.
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