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Spatial Sorting

  • Roberto Pinheiro

    (University of Colorado)

  • Kurt Schmidheiny

    (UPF)

  • Jan Eeckhout

    (UPF)

We propose a theory of skill mobility across cities. It predicts the well documented city size-wage premium: the wage distribution in large cities rst-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" eect: 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 nd that this technology is consistent with the observed patterns of skills.

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Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 488.

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Date of creation: 2011
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Handle: RePEc:red:sed011:488
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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