Agglomeration, Segregation and Imperial Origins

What explains the dramatic differences in earnings across locations? We employ an administrative employer-employee linked dataset from Italy that includes the country’s entire workforce to estimate firm-worker or location-worker effects. We also estimate differences in human capital accumulation across firms and cities. We find that the elasticity of the location premia to density is smaller than in other settings and that other locational characteristics, such as segregation in school or the workplace and inter-generational mobility, are more strongly correlated with earnings and earnings growth. Our place-based estimates are similar if we focus on movers who were forced to relocate after the L’Aquila Earthquake. Using a regression discontinuity design, we find that density levels jump up at the historic border between House of Savoy-ruled Piedmont and the Hapsburg Empire. Earnings today also jump at the border. This finding suggests that there may be some unintended effects of being a far-flung province of a distant empire, perhaps because of access to larger markets or the administrative and educational reforms that began under Empress Maria Theresa.