IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Agglomeration Economies and Labour Productivity: Evidence from Longitudinal Worker Data for GBs Travel-to-Work Areas

  • Daniel J. Graham
  • Patricia C. Melo

This paper analyzes the impact of agglomeration externalities on hourly earnings using longitudinal worker micro-level data from the Annual Survey of Hours and Earnings over the period 2002- 2006. We find that the effect of agglomeration externalities on wages is sensitive to the estimator used. Controlling for nonzero correlation between workers' unobservable skills and other covariates halves the size of the wage elasticity of agglomeration externalities. On the contrary, accounting for firms' unobservable heterogeneity has only a weak contribution to the explanation of wage differentials. Another interesting result is that correcting for reverse causality between productivity and agglomeration does not appear to have a substantial impact on the magnitude of the parameter estimates. Our best estimate for the effect of labour market density (market potential) is 0.8% (5.8%). This means that doubling labour market's employment density can raise hourly earnings by nearly 1%, while halving the distances to other markets produces an increase of hourly wages of nearly 3%. The last piece of evidence refers to the spatial attenuation of agglomeration externalities. We estimate that a 100,000 increase in the number of jobs within 5 kilometres raises hourly wages by approximately 1.19%; the effect falls sharply thereafter.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.spatialeconomics.ac.uk/textonly/SERC/publications/download/sercdp0031.pdf
Download Restriction: no

Paper provided by Spatial Economics Research Centre, LSE in its series SERC Discussion Papers with number 0031.

as
in new window

Length:
Date of creation: Oct 2009
Date of revision:
Handle: RePEc:cep:sercdp:0031
Contact details of provider: Web page: http://www.spatialeconomics.ac.uk/SERC/publications/default.asp

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.:

as in new window
  1. Adsera, Alicia, 2000. "Sectoral spillovers and the price of land: a cost analysis," Regional Science and Urban Economics, Elsevier, vol. 30(5), pages 565-585, September.
  2. Bernard Fingleton, 2003. "Increasing returns: evidence from local wage rates in Great Britain," Oxford Economic Papers, Oxford University Press, vol. 55(4), pages 716-739, October.
  3. Rice, Patricia & Venables, Anthony J, 2004. "Spatial Determinants of Productivity: Analysis for the Regions of Great Britain," CEPR Discussion Papers 4527, C.E.P.R. Discussion Papers.
  4. Dora L. Costa & Matthew E. Kahn, 1999. "Power Couples: Changes in the Locational Choice of the College Educated, 1940-1990," NBER Working Papers 7109, National Bureau of Economic Research, Inc.
  5. Lisa A. Cameron & Mary Amiti, 2004. "Economic Geography and Wages," Econometric Society 2004 Australasian Meetings 253, Econometric Society.
  6. Kleibergen, Frank & Paap, Richard, 2006. "Generalized reduced rank tests using the singular value decomposition," Journal of Econometrics, Elsevier, vol. 133(1), pages 97-126, July.
  7. Gerald A. Carlino & Richard Voith, 1989. "Accounting for differences in aggregate state productivity," Working Papers 90-1, Federal Reserve Bank of Philadelphia.
  8. Kim, Sunwoong, 1989. "Labor Specialization and the Extent of the Market," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 692-705, June.
  9. Tabuchi, Takatoshi & Yoshida, Atsushi, 2000. "Separating Urban Agglomeration Economies in Consumption and Production," Journal of Urban Economics, Elsevier, vol. 48(1), pages 70-84, July.
  10. MION, Giordano & NATICCHIONI, Paolo, 2006. "The spatial sorting and matching of skills and firms," CORE Discussion Papers 2006099, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. Hausman, Jerry A & Taylor, William E, 1981. "Panel Data and Unobservable Individual Effects," Econometrica, Econometric Society, vol. 49(6), pages 1377-98, November.
  12. Diamond, Charles A & Simon, Curtis J, 1990. "Industrial Specialization and the Returns to Labor," Journal of Labor Economics, University of Chicago Press, vol. 8(2), pages 175-201, April.
  13. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2007. "Enhanced routines for instrumental variables/generalized method of moments estimation and testing," Stata Journal, StataCorp LP, vol. 7(4), pages 465-506, December.
  14. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November.
  15. Michael P. Murray, 2006. "Avoiding Invalid Instruments and Coping with Weak Instruments," Journal of Economic Perspectives, American Economic Association, vol. 20(4), pages 111-132, Fall.
  16. Helsley, Robert W. & Strange, William C., 1990. "Matching and agglomeration economies in a system of cities," Regional Science and Urban Economics, Elsevier, vol. 20(2), pages 189-212, September.
  17. Thomas Cornelissen, 2008. "The Stata command felsdvreg to fit a linear model with two high-dimensional fixed effects," Stata Journal, StataCorp LP, vol. 8(2), pages 170-189, June.
  18. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
  19. Yankow, Jeffrey J., 2006. "Why do cities pay more? An empirical examination of some competing theories of the urban wage premium," Journal of Urban Economics, Elsevier, vol. 60(2), pages 139-161, September.
  20. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  21. 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.
  22. Forni, Mario & Paba, Sergio, 2002. "Spillovers and the Growth of Local Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 50(2), pages 151-71, June.
  23. Rosenthal, Stuart S. & Strange, William C., 2004. "Evidence on the nature and sources of agglomeration economies," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 49, pages 2119-2171 Elsevier.
  24. Daniel Graham, 2000. "Spatial Variation in Labour Productivity in British Manufacturing," International Review of Applied Economics, Taylor & Francis Journals, vol. 14(3), pages 323-341.
  25. 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.
  26. Wheeler, Christopher H, 2001. "Search, Sorting, and Urban Agglomeration," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 879-99, October.
  27. Rosenthal, Stuart S. & Strange, William C., 2008. "The attenuation of human capital spillovers," Journal of Urban Economics, Elsevier, vol. 64(2), pages 373-389, September.
  28. Antonio Ciccone, 1998. "Agglomeration-effects in Europe," Economics Working Papers 499, Department of Economics and Business, Universitat Pompeu Fabra, revised Aug 1999.
  29. Antonio Ciccone & Robert E. Hall, 1993. "Productivity and the Density of Economic Activity," NBER Working Papers 4313, National Bureau of Economic Research, Inc.
  30. Shihe Fu, 2005. "Smart Cafe Cities: Testing Human Capital Externalities in the Boston Metropolitan Area," Working Papers 05-24, Center for Economic Studies, U.S. Census Bureau.
  31. Sveikauskas, Leo A, 1975. "The Productivity of Cities," The Quarterly Journal of Economics, MIT Press, vol. 89(3), pages 393-413, August.
  32. Jinyong Hahn & Jerry Hausman, 2003. "Weak Instruments: Diagnosis and Cures in Empirical Econometrics," American Economic Review, American Economic Association, vol. 93(2), pages 118-125, May.
  33. Di Addario, Sabrina & Patacchini, Eleonora, 2008. "Wages and the City. Evidence from Italy," Labour Economics, Elsevier, vol. 15(5), pages 1040-1061, October.
  34. 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.
  35. Rouwendal, Jan, 1999. "Spatial job search and commuting distances," Regional Science and Urban Economics, Elsevier, vol. 29(4), pages 491-517, July.
  36. Guido de Blasio & Sabrina Di Addario, 2005. "Do Workers Benefit from Industrial Agglomeration?," Journal of Regional Science, Wiley Blackwell, vol. 45(4), pages 797-827.
  37. Melo, Patricia C. & Graham, Daniel J. & Noland, Robert B., 2009. "A meta-analysis of estimates of urban agglomeration economies," Regional Science and Urban Economics, Elsevier, vol. 39(3), pages 332-342, May.
  38. John Shea, 1996. "Instrument Relevance in Multivariate Linear Models: A Simple Measure," NBER Technical Working Papers 0193, National Bureau of Economic Research, Inc.
  39. Mion, Giordano & Naticchioni, Paolo, 2005. "Urbanization Externalities, Market Potential and Spatial Sorting of Skills and Firms," CEPR Discussion Papers 5172, C.E.P.R. Discussion Papers.
  40. James H. Stock & Jonathan Wright, 2000. "GMM with Weak Identification," Econometrica, Econometric Society, vol. 68(5), pages 1055-1096, September.
  41. Rosenthal, Stuart S. & Strange, William C., 2001. "The Determinants of Agglomeration," Journal of Urban Economics, Elsevier, vol. 50(2), pages 191-229, September.
  42. Benito, A. & Oswald, A., 2000. "Commuting in Great Britain in the 1990s," The Warwick Economics Research Paper Series (TWERPS) 560, University of Warwick, Department of Economics.
  43. Juan J. de Lucio & José A. Herce & Ana Goicolea, . "Externalities and industrial growth: Spain 1978-1992," Working Papers 96-14, FEDEA.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cep:sercdp:0031. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.