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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. Koo, Jahyeong & Phillips, Keith R & Sigalla, Fiona D, 2000. "Measuring Regional Cost of Living," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(1), pages 127-36, January.
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  10. Klaus Desmet & Esteban Rossi-Hansberg, 2009. "Spatial development," Working Papers 2009-18, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales, revised 28 May 2010.
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  12. Duranton, Gilles & Jayet, Hubert, 2011. "Is the division of labour limited by the extent of the market? Evidence from French cities," Journal of Urban Economics, Elsevier, vol. 69(1), pages 56-71, January.
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  14. Kristian Behrens & Gilles Duranton & Frédéric Robert-Nicoud, 2013. "Productive cities: Sorting, selection, and agglomeration," Research Papers by the Department of Economics, University of Geneva 13111, Département des Sciences Économiques, Université de Genève.
  15. Jan Eeckhout & Philipp Kircher, 2008. "Sorting and Decentralized Price Competition," PIER Working Paper Archive 08-020, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  16. Xavier Gabaix, 1999. "Zipf'S Law For Cities: An Explanation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 739-767, August.
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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. 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.
  3. Michèle Belot & Marco Francesconi, 2013. "Dating Preferences and Meeting Opportunities in Mate Choice Decisions," Journal of Human Resources, University of Wisconsin Press, vol. 48(2), pages 474-508.
  4. Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent & Roux, Sébastien, 2012. "Sorting and Local Wage and Skill Distributions in France," IZA Discussion Papers 6501, Institute for the Study of Labor (IZA).

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