Dynamic Benefits of Working in Large Cities: Evidence from Japanese matched employer–employee data

This study estimates wage and labor productivity profiles using a matched employer-employee dataset of the Japanese service industry. Our main concern is to uncover how work experience in large cities helps workers dynamically accumulate human capital, by comparing wage and labor productivity profiles. This study finds that longer work experience in larger cities steepens wage and labor productivity profiles, suggesting that upgrading skills by working in large cities provides dynamic benefits of agglomeration economies. Interestingly, this study finds different growth patterns between wage and labor productivity premiums. Labor productivity grows rapidly with longer work experience in large cities, but the growth of the labor productivity premium stops at about 15-20 years of work experience; in contrast, the wage premium grows gradually until about 35 years of work experience.