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Why do wages grow faster in urban areas? Sorting of high potentials matters

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  • Paul Verstraten

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • Gerard Verweij
  • Peter Zwaneveld

    (CPB Netherlands Bureau for Economic Policy Analysis)

Abstract

The existence of an urban wage growth premium is a well-established empirical fact. This article challenges the conventional view that faster wage growth for urban workers is caused by human capital spillovers. Instead, we find that the positive association between city size and individual wage growth is to a large extent driven by sorting of workers and firms, with inherently higher wage growth, into bigger cities. Having controlled for spatial sorting, we conclude that only young workers experience significant urban wage growth benefits. Wage level benefits of urban areas are important to all types of workers, especially the highly educated.

Suggested Citation

  • Paul Verstraten & Gerard Verweij & Peter Zwaneveld, 2018. "Why do wages grow faster in urban areas? Sorting of high potentials matters," CPB Discussion Paper 377, CPB Netherlands Bureau for Economic Policy Analysis.
    • Handle: RePEc:cpb:discus:377
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    Cited by:

    1. Paul Verstraten, 2018. "The scope of the external return to higher education," CPB Discussion Paper 381.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
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    JEL classification:

    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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