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Understanding the City Size Wage Gap

Author

Listed:
  • Nathaniel Baum-snow

    (Brown University)

  • Ronni Pavan

    (University of Rochester)

Abstract

It is widely documented that wages are higher in larger cities. This relationship is robust to controls for age, schooling and labor market experience. This paper investigates the causes of the city size wage gap. In particular, we propose a unified framework for empirically investigating the extent to which selection on underlying productivity or ability, firm-worker matching and human capital spillovers can account for observed differences in wages between large and small cities. Our analysis utilizes a model of job search that incorporates endogenous migration between large and small cities. This model is rich enough to allow for recovery of the underlying ability distributions of workers by city size, arrival rates of job offers by ability and location, and returns to experience by ability and location, when structurally estimated using longitudinal data. These estimates facilitate a more complete empirical decomposition of the city size wage gap than is possible using results in existing research and produce new empirical evidence on the relative importance of various mechanisms by which larger cities are more productive.

Suggested Citation

  • Nathaniel Baum-snow & Ronni Pavan, 2009. "Understanding the City Size Wage Gap," 2009 Meeting Papers 524, Society for Economic Dynamics.
  • Handle: RePEc:red:sed009:524
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    References listed on IDEAS

    as
    1. Gabriel M. Ahlfeldt & Stephen J. Redding & Daniel M. Sturm & Nikolaus Wolf, 2015. "The Economics of Density: Evidence From the Berlin Wall," Econometrica, Econometric Society, vol. 83, pages 2127-2189, November.
    2. Alessia Matano & Paolo Naticchioni, 2009. "Wage distribution and the spatial sorting of workers and firms," Working Papers - Dipartimento di Economia 8-DEISFOL, Dipartimento di Economia, Sapienza University of Rome, revised 2009.
    3. Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon, 2011. "The identification of agglomeration economies," Journal of Economic Geography, Oxford University Press, vol. 11(2), pages 253-266, March.
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    More about this item

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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