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Spatial Sorting: Why New York, Los Angeles and Detroit attract the greatest minds as well as the unskilled

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  • Eeckhout, Jan
  • Pinheiro, Roberto
  • Schmidheiny, Kurt

Abstract

We propose a theory of skill mobility across cities. It predicts the well documented city size--wage premium: the wage distribution in large cities first-order stochastically dominates that in small cities. Yet, because this premium is reflected in higher house prices, this does not necessarily imply that this stochastic dominance relation also exists in the distribution of skills. Instead, we find there is second-order stochastic dominance in the skill distribution. The demand for skills is non-monotonic as our model predicts a ``Sinatra'' as well as an ``Eminem'' effect: both the very high and the very low skilled disproportionately sort into the biggest cities, while those with medium skill levels sort into small cities. The pattern of spatial sorting is explained by a technology with a varying elasticity of substitution that is decreasing in skill density. Using CPS data on wages and Census data on house prices, we find that this technology is consistent with the observed patterns of skills.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8151.

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Date of creation: Dec 2010
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Handle: RePEc:cpr:ceprdp:8151

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Keywords: cities; general equilibrium; matching theory; population dynamics; sorting; wage distribution;

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References

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  1. Behrens, Kristian & Duranton, Gilles & Robert-Nicoud, Frédéric, 2010. "Productive cities: Sorting, selection and agglomeration," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7922, C.E.P.R. Discussion Papers.
  2. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2008. "Inequality and Unemployment in a Global Economy," NBER Working Papers 14478, National Bureau of Economic Research, Inc.
  3. Pieter Gautier & Michael Svarer & Coen Teulings, 2005. "Marriage and the City," CAM Working Papers 2005-01, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
  4. Jan Eeckhout & Philipp Kircher, 2010. "Sorting and Decentralized Price Competition," Econometrica, Econometric Society, Econometric Society, vol. 78(2), pages 539-574, 03.
  5. Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent & Puga, Diego & Roux, Sébastien, 2012. "The Productivity Advantages of Large Cities: Distinguishing Agglomeration from Firm Selection," IZA Discussion Papers 6502, Institute for the Study of Labor (IZA).
  6. Sieg, Holger & Smith, V. Kerry & Banzhaf, H. Spencer & Walsh, Randy, 2002. "Interjurisdictional housing prices in locational equilibrium," Journal of Urban Economics, Elsevier, vol. 52(1), pages 131-153, July.
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  11. Morris A. Davis & Jonas D. M. Fisher & Toni M. Whited, 2014. "Macroeconomic Implications of Agglomeration," Econometrica, Econometric Society, Econometric Society, vol. 82(2), pages 731-764, 03.
  12. 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.
  13. Klaus Desmet & Esteban Rossi-Hansberg, 2009. "Spatial development," Working Papers, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales 2009-18, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales, revised 28 May 2010.
  14. Thomas J. Holmes & John J. Stevens, 2004. "Geographic concentration and establishment size: analysis in an alternative economic geography model," Journal of Economic Geography, Oxford University Press, vol. 4(3), pages 227-250, June.
  15. Christian Broda & David E. Weinstein, 2008. "Understanding International Price Differences Using Barcode Data," NBER Working Papers 14017, National Bureau of Economic Research, Inc.
  16. Koo, Jahyeong & Phillips, Keith R & Sigalla, Fiona D, 2000. "Measuring Regional Cost of Living," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 18(1), pages 127-36, January.
  17. Morris A. Davis & François Ortalo-Magné, 2007. "Household Expenditures, Wages, Rents," CESifo Working Paper Series 2156, CESifo Group Munich.
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  20. Robert E. Lucas & Esteban Rossi-Hansberg, 2002. "On the Internal Structure of Cities," Econometrica, Econometric Society, Econometric Society, vol. 70(4), pages 1445-1476, July.
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Citations

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Cited by:
  1. Alberto Dalmazzo & Antonio Accetturo & Guido de Blasio, 2012. "Skill Polarization in Local Labour Markets under Share-Altering Technical Change," ERSA conference papers ersa12p288, European Regional Science Association.
  2. Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent & Roux, Sébastien, 2012. "Sorting and local wage and skill distributions in France," Regional Science and Urban Economics, Elsevier, vol. 42(6), pages 913-930.
  3. Suzanne Kok, 2014. "Matching worker skills to job tasks in the Netherlands: sorting into cities for better careers," IZA Journal of European Labor Studies, Springer, Springer, vol. 3(1), pages 1-36, December.
  4. Donald R. Davis & Jonathan I. Dingel, 2012. "A Spatial Knowledge Economy," NBER Working Papers 18188, National Bureau of Economic Research, Inc.
  5. Suzanne Kok, 2013. "Town and city jobs: Your job is different in another location," CPB Discussion Paper 246, CPB Netherlands Bureau for Economic Policy Analysis.
  6. Suzanne Kok & Bas ter Weel, 2014. "Cities, Tasks and Skills," CPB Discussion Paper 269, CPB Netherlands Bureau for Economic Policy Analysis.
  7. Marco Francesconi & Mich�le Belot, 2011. "Dating Preferences and Meeting Opportunities in Mate Choice Decisions," Economics Discussion Papers, University of Essex, Department of Economics 702, University of Essex, Department of Economics.
  8. Kok, Suzanne & ter Weel, Bas, 2014. "Cities, Tasks and Skills," IZA Discussion Papers 8053, Institute for the Study of Labor (IZA).
  9. Fabien CANDAU & Elisa DIENESCH, 2013. "Globalization, Spatial Sorting and the Geography of Education," Working Papers 2012-2013_7, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Dec 2013.

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