The correlation between wage premia and concentrations of firm activity may arise due to agglomeration economies or workers sorting by unobserved productivity. A worker's residential location is used as a proxy for their unobservable productivity attributes in order to test whether estimated work location wage premia are robust to the inclusion of these controls. Further, in a locational equilibrium, identical workers must receive equivalent compensation so that after controlling for residential location (housing prices) and commutes workers must be paid the same wages and only wage premia arising from unobserved productivity differences should remain unexplained. The models in this paper are estimated using a sample of male workers residing in 33 large metropolitan areas drawn from the 5% Public Use Microdata Sample (PUMS) from the 2000 U.S. Decennial Census. We find that wages are higher when an individual works in a location that has more workers or a greater density of workers. These agglomeration effects are robust to the inclusion of residential location controls and disappear with the inclusion of commute time suggesting that the effects are not caused by unobserved differences in worker productivity. Extended model specifications suggest that wages increase with the education level of nearby workers and the concentration of workers in an individual's own industry or occupation.
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Paper provided by University of Connecticut, Department of Economics in its series Working papers with number
2007-26.
Length: 46 pages Date of creation: Jun 2007 Date of revision:
Dec 2007 Handle: RePEc:uct:uconnp:2007-26
Note: The authors are grateful to Richard Arnott, Nate Baum-Snow, Li Gan, Bill Kerr, Francois Ortalo-Mange, Eleanora Patacchini, Stuart Rosenthal, and Siqi Zheng for their thoughtful comments and conversation. The authors also wish to thank seminar participants at the MIT Real Estate Seminar, the Institute for Real Estate Studies at Tsinghua University, and Southwestern University of Finance and Economics (China) and the conference participants at the 2006 North American Regional Science Association meetings. Contact details of provider: Postal: University of Connecticut 341 Mansfield Road, Unit 1063 Storrs, CT 06269-1063 Phone: (860) 486-4889 Fax: (860) 486-4463 Web page: http://www.econ.uconn.edu/ More information through EDIRC
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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.
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Other versions:
Glaeser, E.L. & Mare, D.C., 1994.
"Cities and Skills,"
Papers
e-94-11, Stanford - Hoover Institution.
Edward L. Glaeser & David C. Mare, 1994.
"Cities and Skills,"
NBER Working Papers
4728, National Bureau of Economic Research, Inc.
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