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The Effects of Agglomeration on Wages: Evidence from the Micro-Level

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  • Bernard Fingleton
  • Simonetta Longhi

Abstract

This paper estimates individual wage equations in order to test two rival non-nested theories of economic agglomeration, namely New Economic Geography (NEG), as represented by the NEG wage equation and urban economic (UE) theory, in which wages relate to employment density. The paper makes an original contribution by evidently being the first empirical paper to examine the issue of agglomeration processes associated with contemporary theory working with micro-level data, highlighting the role of gender and other individual-level characteristics. For male respondents, there is no significant evidence that wage levels are an outcome of the mechanisms suggested by NEG or UE theory, but this is not the case for female respondents. We speculate on the reasons for the gender difference.

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Bibliographic Info

Paper provided by Spatial Economics Research Centre, LSE in its series SERC Discussion Papers with number 0081.

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Date of creation: Jun 2011
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Handle: RePEc:cep:sercdp:0081

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Web page: http://www.spatialeconomics.ac.uk/SERC/publications/default.asp

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Keywords: urban economics; new economic geography; household panel data;

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  1. Bernard Fingleton, 2005. "Towards applied geographical economics: modelling relative wage rates, incomes and prices for the regions of Great Britain," Applied Economics, Taylor & Francis Journals, vol. 37(21), pages 2417-2428.
  2. J. A. Hausman & W. E. Taylor, 1980. "Panel Data and Unobservable Individual Effects," Working papers 255, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Ciccone, Antonio & Hall, Robert E, 1996. "Productivity and the Density of Economic Activity," American Economic Review, American Economic Association, vol. 86(1), pages 54-70, March.
  4. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-29, October.
  5. Bernard Fingleton, 2006. "The new economic geography versus urban economics: an evaluation using local wage rates in Great Britain," Oxford Economic Papers, Oxford University Press, vol. 58(3), pages 501-530, July.
  6. Bernard Fingleton, 2011. "The empirical performance of the NEG with reference to small areas," Journal of Economic Geography, Oxford University Press, vol. 11(2), pages 267-279, March.
  7. Maarten Bosker & Harry Garretsen, 2010. "Trade costs in empirical New Economic Geography," Papers in Regional Science, Wiley Blackwell, vol. 89(3), pages 485-511, 08.
  8. Redding, Stephen & Venables, Anthony J., 2004. "Economic geography and international inequality," Journal of International Economics, Elsevier, vol. 62(1), pages 53-82, January.
  9. Tony Venables, 2010. "Productivity in cities: self-selection and sorting," Economics Series Working Papers 507, University of Oxford, Department of Economics.
  10. Enrique Lopez-Bazo & Bernard Fingleton, 2003. "Explaining the distribution of manufacturing productivity in the EU regions," ERSA conference papers ersa03p197, European Regional Science Association.
  11. Steven Brakman & Harry Garretsen & Charles van Marrewijk, 2009. "Economic Geography within and between European Nations: The Role of Market Potential and Density across Space and Time," CESifo Working Paper Series 2658, CESifo Group Munich.
  12. Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon, 2010. "The Identification of Agglomeration Economies," Working Papers halshs-00535593, HAL.
  13. Harry Garretsen & Ron Martin, 2011. "The Journal of Economic Geography a decade on: where do we go from here?," Journal of Economic Geography, Oxford University Press, vol. 11(2), pages 207-213, March.
  14. Mark E Schaffer, 2005. "XTIVREG2: Stata module to perform extended IV/2SLS, GMM and AC/HAC, LIML and k-class regression for panel data models," Statistical Software Components S456501, Boston College Department of Economics, revised 24 Jul 2012.
  15. Combes, Pierre-Philippe & Duranton, Gilles & Overman, Henry G., 2005. "Agglomeration and the Adjustment of the Spatial Economy," CEPR Discussion Papers 5028, C.E.P.R. Discussion Papers.
  16. Harry Garretsen & Ron Martin, 2010. "Rethinking (New) Economic Geography Models: Taking Geography and History More Seriously," Spatial Economic Analysis, Taylor & Francis Journals, vol. 5(2), pages 127-160.
  17. David Roodman, 2007. "A Note on the Theme of Too Many Instruments," Working Papers 125, Center for Global Development.
  18. repec:ese:iserwp:2009-14 is not listed on IDEAS
  19. Mark E Schaffer & Steven Stillman, 2006. "XTOVERID: Stata module to calculate tests of overidentifying restrictions after xtreg, xtivreg, xtivreg2, xthtaylor," Statistical Software Components S456779, Boston College Department of Economics, revised 02 Nov 2011.
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Cited by:
  1. Ulrich Zierahn, 2012. "The effect of market access on the labor market: Evidence from German reunification," MAGKS Papers on Economics 201239, Philipps-Universit├Ąt Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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