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Worker Sorting and Agglomeration Economies

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  • Theodore Papageorgiou

    (Penn State University)

Abstract

This paper argues that larger cities allow workers to find better occupational matches. We introduce a framework where workers are initially uncertain about the quality of their match with each occupation. They can switch occupations within cities at no cost, whereas moving across cities is costly. Larger cities offer workers more options, who in turn become more selective, and, in equilibrium, earn higher wages. Using data from the SIPP, we find support for the setup's implications regarding worker mobility: conditional on wages, workers in metropolitan areas are more likely to switch occupations; they are also less likely to move; the negative effect of metro areas on the moving probability is significantly larger for workers who recently moved there; workers who move and switch occupations experience significant wage gains, whereas moving without occupational switching does not affect wages; workers who move from a metro area continue to earn higher wages in their new location, but only if they do not switch occupations.

Suggested Citation

  • Theodore Papageorgiou, 2011. "Worker Sorting and Agglomeration Economies," 2011 Meeting Papers 660, Society for Economic Dynamics.
  • Handle: RePEc:red:sed011:660
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    File URL: https://economicdynamics.org/meetpapers/2011/paper_660.pdf
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    References listed on IDEAS

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    1. Eaton, Jonathan & Eckstein, Zvi, 1997. "Cities and growth: Theory and evidence from France and Japan," Regional Science and Urban Economics, Elsevier, vol. 27(4-5), pages 443-474, August.
    2. Roback, Jennifer, 1982. "Wages, Rents, and the Quality of Life," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1257-1278, December.
    3. Edward L. Glaeser & Joshua D. Gottlieb, 2009. "The Wealth of Cities: Agglomeration Economies and Spatial Equilibrium in the United States," Journal of Economic Literature, American Economic Association, vol. 47(4), pages 983-1028, December.
    4. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-499, June.
    5. Dora L. Costa & Matthew E. Kahn, 2000. "Power Couples: Changes in the Locational Choice of the College Educated, 1940–1990," The Quarterly Journal of Economics, Oxford University Press, vol. 115(4), pages 1287-1315.
    6. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    Cited by:

    1. Luc Bridet & Margaret Leighton, 2015. "The Major Decision: Labor Market Implications of the Timing of Specialization in College," Discussion Paper Series, Department of Economics 201510, Department of Economics, University of St. Andrews.
    2. Ludo Visschers & Carlos Carrillo-Tudela, 2011. "Unemployment and Endogenous Reallocation over the Business Cycle," 2011 Meeting Papers 1101, Society for Economic Dynamics.
    3. Carlino, Gerald & Kerr, William R., 2015. "Agglomeration and Innovation," Handbook of Regional and Urban Economics, Elsevier.
    4. Pedros Silos & Eric Smith, 2015. "Human Capital Portfolios," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(3), pages 635-652, July.

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