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The Urban Wage Growth Premium: Sorting or Learning?

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  • Sabine D'Costa
  • Henry G. Overman

Abstract

This paper is concerned with the urban wage premium and addresses two central issues about which the field has not yet reached a consensus. First, the extent to which sorting of high ability individuals into urban areas explains the urban wage premium. Second, whether workers receive this wage premium immediately, or through faster wage growth over time. Using a large panel of worker-level data from Britain, we first demonstrate the existence of an urban premium for wage levels, which increases in city size. We next provide evidence of a city size premium on wage growth, but show that this effect is driven purely by the increase in wage that occurs in the first year that a worker moves to a larger location. Controlling for sorting on the basis of unobservables we find no evidence of an urban wage growth premium. Experience in cities does have some impact on wage growth, however. Specifically, we show that workers who have at some point worked in a city experience faster wage growth than those who have never worked in a city.

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Bibliographic Info

Paper provided by Spatial Economics Research Centre, LSE in its series SERC Discussion Papers with number 0135.

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Date of creation: May 2013
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Handle: RePEc:cep:sercdp:0135

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

Related research

Keywords: urban wage premium; agglomeration; cities; wage growth; worker mobility;

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  1. Sabrina Di Addario & Eleonora Patacchini, 2007. "Wages and the City. Evidence from Italy," Development Working Papers 231, Centro Studi Luca d\'Agliano, University of Milano.
  2. Giordano Mion & Paolo Naticchioni, 2009. "The spatial sorting and matching of skills and firms," Canadian Journal of Economics, Canadian Economics Association, vol. 42(1), pages 28-55, February.
  3. Edward Glaeser, 1997. "Learning in Cities," NBER Working Papers 6271, National Bureau of Economic Research, Inc.
  4. Diego Puga, 2010. "The Magnitude And Causes Of Agglomeration Economies," Journal of Regional Science, Wiley Blackwell, vol. 50(1), pages 203-219.
  5. Christopher H. Wheeler, 2005. "Cities and the growth of wages among young workers: evidence from the NLSY," Working Papers 2005-055, Federal Reserve Bank of St. Louis.
  6. Robert H. Topel & Michael P. Ward, 1988. "Job Mobility and the Careers of Young Men," NBER Working Papers 2649, National Bureau of Economic Research, Inc.
  7. Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent, 2008. "Spatial wage disparities: Sorting matters!," Journal of Urban Economics, Elsevier, vol. 63(2), pages 723-742, March.
  8. Nathaniel Baum-Snow & Ronni Pavan, 2010. "Understanding the city size wage gap," Working Papers 2010/27, Institut d'Economia de Barcelona (IEB).
  9. E. D. Gould, 2007. "Cities, Workers, and Wages: A Structural Analysis of the Urban Wage Premium," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 477-506.
  10. Daniel J. Graham & Patricia C. Melo, 2009. "Agglomeration economies and labour productivity: evidence from longitudinal worker data for GB's travel-to-work areas," LSE Research Online Documents on Economics 33268, London School of Economics and Political Science, LSE Library.
  11. Glaeser, Edward L & Mare, David C, 2001. "Cities and Skills," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 316-42, April.
  12. Steve Gibbons & Henry G. Overman & Panu Pelkonen, 2010. "Wage Disparities in Britain: People or Place?," SERC Discussion Papers 0060, Spatial Economics Research Centre, LSE.
  13. Yankow, Jeffrey J., 2006. "Why do cities pay more? An empirical examination of some competing theories of the urban wage premium," Journal of Urban Economics, Elsevier, vol. 60(2), pages 139-161, September.
  14. Hildegunn Stokke & Jørn Rattsø & Fredrik Carlsen, 2012. "Urban wage premium increasing with education level: Identification of agglomeration effects for Norway," ERSA conference papers ersa12p459, European Regional Science Association.
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