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Spatial Wage Disparities: Sorting Matters!

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Author Info
Combes, Pierre-Philippe
Duranton, Gilles
Gobillon, Laurent

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Abstract

Spatial wage disparities can result from spatial differences in the skill composition of the workforce, in non-human endowments, and in local interactions. To distinguish between these explanations, we estimate a model of wage determination across local labour markets using a very large panel of French workers. We control for worker characteristics, worker fixed-effects, industry fixed-effects, and the characteristics of the local labour market. Our findings suggest that individual skills account for a large fraction of existing spatial wage disparities with strong evidence of spatial sorting by skills. Interaction effects are mostly driven by the local density of employment. Not controlling for worker heterogeneity biases estimates of agglomeration economies by up to 100%. We also find evidence of various omitted variable biases and reverse causality between agglomeration and high wages. Finally, endowments only appear to play a small role.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4240.

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Date of creation: Feb 2004
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Handle: RePEc:cpr:ceprdp:4240

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Related research
Keywords: local labour market panel data analysis sorting spatial wage disparities

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Find related papers by JEL classification:
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J61 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Geographic Labor Mobility; Immigrant Workers
R23 - Urban, Rural, and Regional Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Pierre-Philippe Combes & Gilles Duranton & Henry G. Overman, 2005. "Agglomeration and the Adjustment of the Spatial Economy," CEP Discussion Papers dp0689, Centre for Economic Performance, LSE. [Downloadable!]
    Other versions:
  2. Shihe Fu & Stephen L. Ross, 2007. "Wage Premia in Employment Clusters: Agglomeration Economies or Worker Heterogeneity?," Working papers 2007-26, University of Connecticut, Department of Economics, revised Dec 2007. [Downloadable!]
  3. Berliant, Marcus & Kung, Fan-chin, 2008. "Can information asymmetry cause agglomeration?," MPRA Paper 8388, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  4. Eid, Jean & Overman, Henry G. & Puga, Diego & Turner, Matthew A, 2007. "Fat City: Questioning the Relationship Between Urban Sprawl and Obesity," CEPR Discussion Papers 6191, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. Mion, Giordano & Naticchioni, Paolo, 2005. "Urbanization Externalities, Market Potential and Spatial Sorting of Skills and Firms," CEPR Discussion Papers 5172, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. Jean Eid & Henry G. Overman & Diego Puga & Matthew A. Turner, 2006. "Fat City: The Relationship Between Urban Sprawl and Obesity," Working Papers tecipa-255, University of Toronto, Department of Economics. [Downloadable!]
    Other versions:
  7. Toshihiro Okubo & Vincent Rebeyrol, 2006. "Home Market Effect, regulation costs and heterogeneous firms," Cahiers de la Maison des Sciences Economiques bla06056, Université Panthéon-Sorbonne (Paris 1). [Downloadable!]
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  8. Jordan Rappaport, 2004. "A simple model of city crowdedness," Research Working Paper RWP 04-12, Federal Reserve Bank of Kansas City. [Downloadable!]
  9. Daniel F. Heuermann, 2008. "Human Capital Externalities in Western Germany," Discussion Papers 200801, Institute of Labour Law and Industrial Relations in the European Community (IAAEG). [Downloadable!]
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  11. Patricia Rice & Anthony J. Venables, 2004. "Spatial Determinants of Productivity: Analysis for the Regions of Great Britain," CEP Discussion Papers dp0642, Centre for Economic Performance, LSE. [Downloadable!]
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  12. Jordan Rappaport, 2003. "Moving to nice weather," Research Working Paper RWP 03-07, Federal Reserve Bank of Kansas City. [Downloadable!]
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