IDEAS home Printed from https://ideas.repec.org/p/str/wpaper/1124.html
   My bibliography  Save this paper

The effects of agglomeration on wages: evidence from the micro-level

Author

Listed:
  • Bernard Fingleton

    (Department of Economics, University of Strathclyde)

  • Simonetta Longhi

    (Institute for Social and Economic Research (ISER), University of Essex.)

Abstract

This paper estimates individual wage equations in order to test two rival non-nested theories of economic agglomeration, namely New Economic Geography (NEG), as represented by the NEG wage equation and urban economic (UE) theory , in which wages relate to employment density. The paper makes an original contribution by evidently being the first empirical paper to examine the issue of agglomeration processes associated with contemporary theory working with micro-level data, highlighting the role of gender and other individual-level characteristics. For male respondents, there is no significant evidence that wage levels are an outcome of the mechanisms suggested by NEG or UE theory, but this is not the case for female respondents. We speculate on the reasons for the gender difference.

Suggested Citation

  • Bernard Fingleton & Simonetta Longhi, 2011. "The effects of agglomeration on wages: evidence from the micro-level," Working Papers 1124, University of Strathclyde Business School, Department of Economics.
    • Handle: RePEc:str:wpaper:1124
    as

    Download full text from publisher

    File URL: http://www.strath.ac.uk/media/1newwebsite/departmentsubject/economics/research/researchdiscussionpapers/2011/11-24_Final.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bernard Fingleton & Enrique López-Bazo, 2003. "Explaining the Distribution of Manufacturing Productivity in the EU Regions," Advances in Spatial Science, in: Bernard Fingleton (ed.), European Regional Growth, chapter 13, pages 375-409, Springer.
    2. Bernard Fingleton (ed.), 2007. "New Directions in Economic Geography," Books, Edward Elgar Publishing, number 3818.
    3. Mark E Schaffer & Steven Stillman, 2006. "XTOVERID: Stata module to calculate tests of overidentifying restrictions after xtreg, xtivreg, xtivreg2, xthtaylor," Statistical Software Components S456779, Boston College Department of Economics, revised 15 Jan 2016.
    4. Redding, Stephen & Venables, Anthony J., 2004. "Economic geography and international inequality," Journal of International Economics, Elsevier, vol. 62(1), pages 53-82, January.
    5. Pierre-Philippe Combes & Thierry Mayer & Jacques-François Thisse, 2008. "Economic Geography: The Integration of Regions and Nations," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00311000, HAL.
    6. David Roodman, 2009. "A Note on the Theme of Too Many Instruments," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(1), pages 135-158, February.
    7. Anthony J. Venables, 2011. "Productivity in cities: self-selection and sorting," Journal of Economic Geography, Oxford University Press, vol. 11(2), pages 241-251, March.
    8. Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon, 2011. "The identification of agglomeration economies," Journal of Economic Geography, Oxford University Press, vol. 11(2), pages 253-266, March.
    9. Bernard Fingleton, 2006. "The new economic geography versus urban economics: an evaluation using local wage rates in Great Britain," Oxford Economic Papers, Oxford University Press, vol. 58(3), pages 501-530, July.
    10. Ciccone, Antonio & Hall, Robert E, 1996. "Productivity and the Density of Economic Activity," American Economic Review, American Economic Association, vol. 86(1), pages 54-70, March.
    11. Harry Garretsen & Ron Martin, 2011. "The Journal of Economic Geography a decade on: where do we go from here?," Journal of Economic Geography, Oxford University Press, vol. 11(2), pages 207-213, March.
    12. 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.
    13. Davidson, Russell & MacKinnon, James G, 1981. "Several Tests for Model Specification in the Presence of Alternative Hypotheses," Econometrica, Econometric Society, vol. 49(3), pages 781-793, May.
    14. Gianmarco I. P. Ottaviano, 2011. "'New' new economic geography: firm heterogeneity and agglomeration economies," Journal of Economic Geography, Oxford University Press, vol. 11(2), pages 231-240, March.
    15. Marco Francesconi & Holly Sutherland & Francesca Zantomio, 2011. "A comparison of earnings measures from longitudinal and cross‐sectional surveys: evidence from the UK," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 174(2), pages 297-326, April.
    16. Maarten Bosker & Harry Garretsen, 2010. "Trade costs in empirical New Economic Geography," Papers in Regional Science, Wiley Blackwell, vol. 89(3), pages 485-511, August.
    17. Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164, Decembrie.
    18. Bell, Brian & Nickell, Stephen & Quintini, Glenda, 2002. "Wage equations, wage curves and all that," Labour Economics, Elsevier, vol. 9(3), pages 341-360, July.
    19. Simonetta Longhi & Peter Nijkamp & Jacques Poot, 2006. "Spatial Heterogeneity And The Wage Curve Revisited," Journal of Regional Science, Wiley Blackwell, vol. 46(4), pages 707-731, October.
    20. David G. Blanchflower & Andrew J. Oswald, 2005. "The Wage Curve Reloaded," NBER Working Papers 11338, National Bureau of Economic Research, Inc.
    21. Pierre Philippe Combes & Gilles Duranton & Henry G. Overman, 2005. "Agglomeration and the adjustment of the spatial economy§," Papers in Regional Science, Wiley Blackwell, vol. 84(3), pages 311-349, August.
    22. Mark E Schaffer, 2005. "XTIVREG2: Stata module to perform extended IV/2SLS, GMM and AC/HAC, LIML and k-class regression for panel data models," Statistical Software Components S456501, Boston College Department of Economics, revised 26 Jun 2020.
    23. Bernard Fingleton & Julie Le Gallo, 2008. "Estimating spatial models with endogenous variables, a spatial lag and spatially dependent disturbances: Finite sample properties," Papers in Regional Science, Wiley Blackwell, vol. 87(3), pages 319-339, August.
    24. Peter Nijkamp & Jacques Poot, 2005. "The Last Word on the Wage Curve?," Journal of Economic Surveys, Wiley Blackwell, vol. 19(3), pages 421-450, July.
    25. David Card, 1995. "The Wage Curve: A Review," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 285-299, June.
    26. Julie Le Gallo & Bernard Fingleton, 2008. "Estimating spatial models with endogenous variables, a spatial lag and spatially dependent disturbances : finite sample properties," Post-Print hal-00485035, HAL.
    27. Steven Brakman & Harry Garretsen & Charles Van Marrewijk, 2009. "Economic Geography Within And Between European Nations: The Role Of Market Potential And Density Across Space And Time," Journal of Regional Science, Wiley Blackwell, vol. 49(4), pages 777-800, October.
    28. Godfrey, Leslie G, 1983. "Testing Non-Nested Models after Estimation by Instrumental Variables or Least Squares," Econometrica, Econometric Society, vol. 51(2), pages 355-365, March.
    29. David G. Blanchflower & Andrew J. Oswald, 1995. "An Introduction to the Wage Curve," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 153-167, Summer.
    30. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-858, May.
    31. Baltagi, Badi H. & Blien, Uwe & Wolf, Katja, 2009. "New evidence on the dynamic wage curve for Western Germany: 1980-2004," Labour Economics, Elsevier, vol. 16(1), pages 47-51, January.
    32. Gilles Duranton, 2010. "Introduction: The Journal Of Regional Science At 50: Looking Forward To The Next 50 Years," Journal of Regional Science, Wiley Blackwell, vol. 50(1), pages 1-3, February.
    33. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 334-338, May.
    34. Hausman, Jerry A & Taylor, William E, 1981. "Panel Data and Unobservable Individual Effects," Econometrica, Econometric Society, vol. 49(6), pages 1377-1398, November.
    35. David Card, 1995. "The Wage Curve: A Review," Working Papers 722, Princeton University, Department of Economics, Industrial Relations Section..
    36. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-529, October.
    37. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119, Decembrie.
    38. Bernard Fingleton (ed.), 2003. "European Regional Growth," Advances in Spatial Science, Springer, number 978-3-662-07136-6, Fall.
    39. repec:fth:prinin:343 is not listed on IDEAS
    40. Baltagi, Badi H. & Blien, Uwe, 1998. "The German wage curve: evidence from the IAB employment sample," Economics Letters, Elsevier, vol. 61(2), pages 135-142, November.
    41. M. H. Pesaran, 1974. "On the General Problem of Model Selection," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(2), pages 153-171.
    42. Laura Hering & Sandra Poncet, 2010. "Market Access and Individual Wages: Evidence from China," The Review of Economics and Statistics, MIT Press, vol. 92(1), pages 145-159, February.
    43. Kelejian, Harry H. & Prucha, Ingmar R., 2007. "HAC estimation in a spatial framework," Journal of Econometrics, Elsevier, vol. 140(1), pages 131-154, September.
    44. Andrews,Donald W. K. & Stock,James H. (ed.), 2005. "Identification and Inference for Econometric Models," Cambridge Books, Cambridge University Press, number 9780521844413.
    45. Russell Davidson & James G. Mackinnon, 1982. "Some Non-Nested Hypothesis Tests and the Relations Among Them," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(4), pages 551-565.
    46. Bernard Fingleton, 2005. "Towards applied geographical economics: modelling relative wage rates, incomes and prices for the regions of Great Britain," Applied Economics, Taylor & Francis Journals, vol. 37(21), pages 2417-2428.
    47. Bernard Fingleton, 2011. "The empirical performance of the NEG with reference to small areas," Journal of Economic Geography, Oxford University Press, vol. 11(2), pages 267-279, March.
    48. Russell Davidson & James MacKinnon, 2002. "Fast Double Bootstrap Tests Of Nonnested Linear Regression Models," Econometric Reviews, Taylor & Francis Journals, vol. 21(4), pages 419-429.
    49. Harry Garretsen & Ron Martin, 2010. "Rethinking (New) Economic Geography Models: Taking Geography and History More Seriously," Spatial Economic Analysis, Taylor & Francis Journals, vol. 5(2), pages 127-160.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nabavi, Pardis, 2015. "Increasing Wage Gap, Spatial Structure and Market Access: Evidence from Swedish Micro Data," Working Paper Series in Economics and Institutions of Innovation 409, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    2. Guo, Yunxia & Yu, Mengyao & Xu, Mingchen & Tang, Ying & Huang, Jingran & Liu, Jia & Hao, Yu, 2023. "Productivity gains from green finance: A holistic and regional examination from China," Energy Economics, Elsevier, vol. 127(PA).
    3. Ana Maria Bonomi Barufi, 2014. "Regional labor markets in Brazil: the role of skills and agglomeration economies," Working Papers, Department of Economics 2014_18, University of São Paulo (FEA-USP).
    4. Fingleton, Bernard & Szumilo, Nikodem, 2019. "Simulating the impact of transport infrastructure investment on wages: A dynamic spatial panel model approach," Regional Science and Urban Economics, Elsevier, vol. 75(C), pages 148-164.
    5. Long Thanh Giang & Cuong Viet Nguyen & Tuyen Quang Tran & Vu Thieu, 2017. "Does Firm Agglomeration Matter to Labor and Education of Local Children? Evidence in Vietnam," Child Indicators Research, Springer;The International Society of Child Indicators (ISCI), vol. 10(4), pages 1015-1041, December.
    6. Barufi, Ana Maria, 2014. "Agglomeration Economies in the Brazilian Formal Labor Market," TD NEREUS 3-2014, Núcleo de Economia Regional e Urbana da Universidade de São Paulo (NEREUS).
    7. Juan Soto & Dusan Paredes, 2016. "Cities, Wages, And The Urban Hierarchy," Journal of Regional Science, Wiley Blackwell, vol. 56(4), pages 596-614, September.
    8. Hamann, Silke & Niebuhr, Annekatrin & Peters, Jan Cornelius, 2016. "Benefits of dense labour markets: Evidence from transitions to employment in Germany," Economics Working Papers 2016-07, Christian-Albrechts-University of Kiel, Department of Economics.
    9. Justin Doran & Bernard Fingleton, 2015. "Resilience from the micro perspective," Cambridge Journal of Regions, Economy and Society, Cambridge Political Economy Society, vol. 8(2), pages 205-223.
    10. Carlos Carreira & Luís Lopes, 2020. "How are the potential gains from economic activity transmitted to the labour factor: more employment or more wages? Evidence from the Portuguese context," Regional Science Policy & Practice, Wiley Blackwell, vol. 12(2), pages 319-348, April.
    11. Li, Yan & Chen, Zhenhua, 2023. "Does transportation infrastructure accelerate factor outflow from shrinking cities? An evidence from China," Transport Policy, Elsevier, vol. 134(C), pages 180-190.
    12. Jiamin Liu & Xiaoyu Ma & Wenli Jia & Sisi Zhang, 2022. "Can New-Type Urbanization Construction Narrow the Urban–Rural Income Gap? Evidence from China," Sustainability, MDPI, vol. 14(22), pages 1-25, November.
    13. Ulrich Zierahn, 2012. "The effect of market access on the labor market: Evidence from German reunification," MAGKS Papers on Economics 201239, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bernard FINGLETON & Silvia PALOMBI, 2013. "The Wage Curve Reconsidered: Is It Truly An 'Empirical Law Of Economics'?," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 38, pages 49-92.
    2. Nabavi, Pardis, 2015. "Increasing Wage Gap, Spatial Structure and Market Access: Evidence from Swedish Micro Data," Working Paper Series in Economics and Institutions of Innovation 409, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    3. Fingleton, Bernard & Palombi, Silvia, 2013. "Spatial panel data estimation, counterfactual predictions, and local economic resilience among British towns in the Victorian era," Regional Science and Urban Economics, Elsevier, vol. 43(4), pages 649-660.
    4. Ana Maria Bonomi Barufi & Eduardo A. Haddad, Peter Nijkamp, 2016. "New evidence on the wage curve: non-linearities, urban size, and spatial scale in Brazil," Working Papers, Department of Economics 2016_39, University of São Paulo (FEA-USP).
    5. Combes, Pierre-Philippe & Gobillon, Laurent, 2015. "The Empirics of Agglomeration Economies," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 247-348, Elsevier.
    6. Reinhold Kosfeld & Christian Dreger, 2018. "Local and spatial cointegration in the wage curve – a spatial panel analysis for german regions," Review of Regional Research: Jahrbuch für Regionalwissenschaft, Springer;Gesellschaft für Regionalforschung (GfR), vol. 38(1), pages 53-75, February.
    7. Kosfeld, Reinhold & Dreger, Christian, 2019. "Towards an East German wage curve - NUTS boundaries, labour market regions and unemployment spillovers," Regional Science and Urban Economics, Elsevier, vol. 76(C), pages 115-124.
    8. repec:hal:spmain:info:hdl:2441/1kv8mtgl748r0ahh12air9erdc is not listed on IDEAS
    9. Roberts, Mark & Deichmann, Uwe & Fingleton, Bernard & Shi, Tuo, 2012. "Evaluating China's road to prosperity: A new economic geography approach," Regional Science and Urban Economics, Elsevier, vol. 42(4), pages 580-594.
    10. Ana Maria Bonomi Barufi & Eduardo Amaral Haddad & Peter Nijkamp, 2016. "Industrial scope of agglomeration economies in Brazil," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 56(3), pages 707-755, May.
    11. Víctor M. Montuenga‐Gómez & José M. Ramos‐Parreño, 2005. "Reconciling the Wage Curve and the Phillips Curve," Journal of Economic Surveys, Wiley Blackwell, vol. 19(5), pages 735-765, December.
    12. Ana Barufi & Eduardo Haddad & Peter Nijkamp, 2016. "A comprehensive analysis of the wage curve in Brazil: Non-linearities, urban size, and the spatial dimension," ERSA conference papers ersa16p279, European Regional Science Association.
    13. Bernard Fingleton & Silvia Palombi, 2016. "Bootstrap J -Test for Panel Data Models with Spatially Dependent Error Components, a Spatial Lag and Additional Endogenous Variables," Spatial Economic Analysis, Taylor & Francis Journals, vol. 11(1), pages 7-26, March.
    14. Baltagi, Badi H. & Rokicki, Bartlomiej, 2014. "The spatial Polish wage curve with gender effects: Evidence from the Polish Labor Survey," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 36-47.
    15. Baltagi, Badi H. & Blien, Uwe & Wolf, Katja, 2009. "New evidence on the dynamic wage curve for Western Germany: 1980-2004," Labour Economics, Elsevier, vol. 16(1), pages 47-51, January.
    16. Joan Daouli & Michael Demoussis & Nicholas Giannakopoulos & Ioannis Laliotis, 2017. "The wage curve before and during the Greek economic crisis," Empirical Economics, Springer, vol. 52(1), pages 59-77, February.
    17. Bernard Fingleton & Manfred Fischer, 2010. "Neoclassical theory versus new economic geography: competing explanations of cross-regional variation in economic development," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 44(3), pages 467-491, June.
    18. David G. Blanchflower & Andrew J. Oswald, 2005. "The Wage Curve Reloaded," NBER Working Papers 11338, National Bureau of Economic Research, Inc.
    19. Simonetta Longhi, 2012. "Job Competition and the Wage Curve," Regional Studies, Taylor & Francis Journals, vol. 46(5), pages 611-620, August.
    20. Pierre-Philippe Combes, 2011. "The empirics of economic geography: how to draw policy implications?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 147(3), pages 567-592, September.
    21. J. Paul Elhorst & Uwe Blien & Katja Wolf, 2007. "New Evidence on the Wage Curve," International Regional Science Review, , vol. 30(2), pages 173-191, April.

    More about this item

    Keywords

    urban economics; new economic geography; household panel data.;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D1 - Microeconomics - - Household Behavior
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:str:wpaper:1124. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirsty Hall (email available below). General contact details of provider: https://edirc.repec.org/data/edstruk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.