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Spatial Sorting: Why New York, Los Angeles and Detroit attract the greatest minds as well as the unskilled

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Listed author(s):
  • Eeckhout, Jan
  • Pinheiro, Roberto
  • Schmidheiny, Kurt

Abstract

We propose a theory of skill mobility across cities. It predicts the well documented city size--wage premium: the wage distribution in large cities first-order stochastically dominates that in small cities. Yet, because this premium is reflected in higher house prices, this does not necessarily imply that this stochastic dominance relation also exists in the distribution of skills. Instead, we find there is second-order stochastic dominance in the skill distribution. The demand for skills is non-monotonic as our model predicts a ``Sinatra'' as well as an ``Eminem'' effect: both the very high and the very low skilled disproportionately sort into the biggest cities, while those with medium skill levels sort into small cities. The pattern of spatial sorting is explained by a technology with a varying elasticity of substitution that is decreasing in skill density. Using CPS data on wages and Census data on house prices, we find that this technology is consistent with the observed patterns of skills.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8151.

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Date of creation: Dec 2010
Handle: RePEc:cpr:ceprdp:8151
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Keywords: cities; general equilibrium; matching theory; population dynamics; sorting; wage distribution;

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Find related papers by JEL classification:
  • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
  • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
  • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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  1. Christian Broda & David E. Weinstein, 2008. "Understanding International Price Differences Using Barcode Data," NBER Working Papers 14017, National Bureau of Economic Research, Inc.
  2. Kristian Behrens & Gilles Duranton & Frédéric Robert-Nicoud, 2014. "Productive Cities: Sorting, Selection, and Agglomeration," Journal of Political Economy, University of Chicago Press, vol. 122(3), pages 507-553.
  3. Thomas J. Holmes & John J. Stevens, 2004. "Geographic concentration and establishment size: analysis in an alternative economic geography model," Journal of Economic Geography, Oxford University Press, vol. 4(3), pages 227-250, June.
  4. Pierre‐Philippe Combes & Gilles Duranton & Laurent Gobillon & Diego Puga & Sébastien Roux, 2012. "The Productivity Advantages of Large Cities: Distinguishing Agglomeration From Firm Selection," Econometrica, Econometric Society, vol. 80(6), pages 2543-2594, November.
  5. Pieter A. Gautier & Michael Svarer & Coenraad N. Teulings, 2005. "Marriage and the City," CESifo Working Paper Series 1422, CESifo Group Munich.
  6. Duranton, Gilles & Jayet, Hubert, 2011. "Is the division of labour limited by the extent of the market? Evidence from French cities," Journal of Urban Economics, Elsevier, vol. 69(1), pages 56-71, January.
  7. Koo, Jahyeong & Phillips, Keith R & Sigalla, Fiona D, 2000. "Measuring Regional Cost of Living," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(1), pages 127-136, January.
  8. Morris A. Davis & Jonas D. M. Fisher & Toni M. Whited, 2014. "Macroeconomic Implications of Agglomeration," Econometrica, Econometric Society, vol. 82(2), pages 731-764, 03.
  9. Sieg, Holger & Smith, V. Kerry & Banzhaf, H. Spencer & Walsh, Randy, 2002. "Interjurisdictional housing prices in locational equilibrium," Journal of Urban Economics, Elsevier, vol. 52(1), pages 131-153, July.
  10. E. D. Gould, 2007. "Cities, Workers, and Wages: A Structural Analysis of the Urban Wage Premium," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 477-506.
  11. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2010. "Inequality and Unemployment in a Global Economy," Econometrica, Econometric Society, vol. 78(4), pages 1239-1283, 07.
  12. Jan Eeckhout & Philipp Kircher, 2010. "Sorting and Decentralized Price Competition," Econometrica, Econometric Society, vol. 78(2), pages 539-574, 03.
  13. Thomas J. Holmes & John J. Stevens, 2002. "Geographic Concentration and Establishment Scale," The Review of Economics and Statistics, MIT Press, vol. 84(4), pages 682-690, November.
  14. Klaus Desmet & Esteban Rossi-Hansberg, 2014. "Spatial Development," American Economic Review, American Economic Association, vol. 104(4), pages 1211-1243, April.
  15. Keane, Michael P & Wolpin, Kenneth I, 1997. "The Career Decisions of Young Men," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 473-522, June.
  16. Morris A. Davis & Francois Ortalo-Magne, 2011. "Household Expenditures, Wages, Rents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(2), pages 248-261, April.
  17. Robert E. Lucas & Esteban Rossi-Hansberg, 2002. "On the Internal Structure of Cities," Econometrica, Econometric Society, vol. 70(4), pages 1445-1476, July.
  18. David Albouy, 2008. "Are Big Cities Bad Places to Live? Estimating Quality of Life across Metropolitan Areas," NBER Working Papers 14472, National Bureau of Economic Research, Inc.
  19. Xavier Gabaix, 1999. "Zipf's Law for Cities: An Explanation," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 739-767.
  20. Jan Eeckhout & Roberto Pinheiro, 2014. "Diverse Organizations And The Competition For Talent," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55, pages 625-664, 08.
  21. Christian Broda & Ephraim Leibtag & David E. Weinstein, 2009. "The Role of Prices in Measuring the Poor's Living Standards," Journal of Economic Perspectives, American Economic Association, vol. 23(2), pages 77-97, Spring.
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Cited by:

  1. Donald R. Davis & Jonathan I. Dingel, 2012. "A Spatial Knowledge Economy," NBER Working Papers 18188, National Bureau of Economic Research, Inc.
  2. repec:esx:essedp:702 is not listed on IDEAS
  3. Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent & Roux, Sébastien, 2012. "Sorting and local wage and skill distributions in France," Regional Science and Urban Economics, Elsevier, vol. 42(6), pages 913-930.
  4. Suzanne Kok, 2014. "Matching worker skills to job tasks in the Netherlands: sorting into cities for better careers," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-36, December.
  5. Antonio Accetturo & Alberto Dalmazzo & Guido Blasio, 2014. "Skill Polarization In Local Labor Markets Under Share-Altering Technical Change," Journal of Regional Science, Wiley Blackwell, vol. 54(2), pages 249-272, 03.
  6. Suzanne Kok & Bas ter Weel, 2014. "Cities, Tasks, And Skills," Journal of Regional Science, Wiley Blackwell, vol. 54(5), pages 856-892, November.
  7. de la Roca, Jorge & Puga, Diego, 2012. "Learning by working in big cities," CEPR Discussion Papers 9243, C.E.P.R. Discussion Papers.
  8. Rafael Alvarado & Miguel Atienza, 2014. "The role of market access and human capital in regional wage disparities: Empirical evidence for Ecuador," Documentos de Trabajo en Economia y Ciencia Regional 50, Universidad Catolica del Norte, Chile, Department of Economics, revised Mar 2014.
  9. Fabien Candau & Elisa Dienesch, 2015. "Spatial distribution of skills and regional trade integration," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 54(2), pages 451-488, March.
  10. Suzanne Kok, 2013. "Town and city jobs: Your job is different in another location," CPB Discussion Paper 246, CPB Netherlands Bureau for Economic Policy Analysis.
  11. Or Levkovich & Jan Rouwendal, 2014. "Location Choices of highly Educated Foreign Workers: the Importance of Urban Amenities," Tinbergen Institute Discussion Papers 14-093/VIII, Tinbergen Institute.
  12. Yuming Fu & Yang Hao, 2015. "An Urban Accounting for Geographic Concentration of Skills and Welfare Inequality," ERSA conference papers ersa15p734, European Regional Science Association.

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