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Urbanization Externalities, Market Potential and Spatial Sorting of Skills and Firms

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  • Mion, Giordano
  • Naticchioni, Paolo

Abstract

Using a matched employer-employee dataset on Italy we look at the spatial distribution of wages among provinces. We find evidence of both urbanization and market potential externalities, with the second one being more relevant. However, spatial sorting of skills is at work and explains a great deal of spatial wage variability. We further show that this sorting is only partially due to migrations and it dampens estimates of spatial externalities. The evidence concerning the sorting of firms is instead quite weak. In the paper, we also find support of self-selection of migrants based on skills and a moderate evidence of the wage growth hypothesis. Finally, we show that the well-established correlation between the employer size and workers' skills is not simply the outcome of a co-location phenomenon.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5172.

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Date of creation: Aug 2005
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Handle: RePEc:cpr:ceprdp:5172

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Keywords: firms' heterogeneity; panel data; skills; sorting; spatial externalities;

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  1. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
  2. Redding, Stephen & Schott, Peter K., 2003. "Distance, skill deepening and development: will peripheral countries ever get rich?," Journal of Development Economics, Elsevier, vol. 72(2), pages 515-541, December.
  3. Keith Head & Thierry Mayer, 2005. "Regional Wage and Employment Responses to Market Potential in the EU," Bruges European Economic Research Papers 3, European Economic Studies Department, College of Europe.
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  7. Fujita,Masahisa & Thisse,Jacques-François, 2013. "Economics of Agglomeration," Cambridge Books, Cambridge University Press, number 9781107001411.
  8. 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.
  9. Edward L. Glaeser & Hedi D. Kallal & Jose A. Scheinkman & Andrei Shleifer, 1991. "Growth in Cities," NBER Working Papers 3787, National Bureau of Economic Research, Inc.
    • Glaeser, Edward Ludwig & Kallal, Hedi D. & Scheinkman, Jose A. & Shleifer, Andrei, 1992. "Growth in Cities," Scholarly Articles 3451309, Harvard University Department of Economics.
  10. 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.
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