City Air and City Markets

Higher nominal wages in urban areas are well-documented phenomena which imply higher productivity of urban workers. Yankow and Wheeler show that these gains come through a variety of sources including static agglomeration economies and dynamic learning and matching efficiencies in cities. Yet, earlier articles offer little evidence of how the effects of learning and matching on urban wage differentials vary by city size. This article allows for the relative importance of these productivity advantages to differ according to the size of the city and finds significant differences between small, medium, and large cities. We find that learning efficiencies are most important in medium-sized cities, while a mix of learning and matching efficiencies are important in the largest and smallest cities.