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Urbanization Externalities, Market Potential and Spatial Sorting of Skills and Firms

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  • Mion, Giordano
  • Naticchioni, Paolo

Abstract

Using a matched employer-employee dataset on Italy we look at the spatial distribution of wages among provinces. We find evidence of both urbanization and market potential externalities, with the second one being more relevant. However, spatial sorting of skills is at work and explains a great deal of spatial wage variability. We further show that this sorting is only partially due to migrations and it dampens estimates of spatial externalities. The evidence concerning the sorting of firms is instead quite weak. In the paper, we also find support of self-selection of migrants based on skills and a moderate evidence of the wage growth hypothesis. Finally, we show that the well-established correlation between the employer size and workers' skills is not simply the outcome of a co-location phenomenon.

Suggested Citation

  • 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.
  • Handle: RePEc:cpr:ceprdp:5172
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    References listed on IDEAS

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    More about this item

    Keywords

    firms' heterogeneity; panel data; skills; sorting; spatial externalities;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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