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Spatial Wage Disparities: Sorting Matters!

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  • Duranton, Gilles
  • Combes, Pierre-Philippe
  • Gobillon, Laurent

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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  • Duranton, Gilles & Combes, Pierre-Philippe & Gobillon, Laurent, 2004. "Spatial Wage Disparities: Sorting Matters!," CEPR Discussion Papers 4240, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:4240
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    More about this item

    Keywords

    Local labour market; Spatial wage disparities; Panel data analysis; Sorting;
    All these keywords.

    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, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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