Why do wages grow faster in urban areas? Sorting of high potentials matters

Paul Verstraten (), Gerard Verweij and Peter Zwaneveld ()
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Paul Verstraten: CPB Netherlands Bureau for Economic Policy Analysis
Peter Zwaneveld: CPB Netherlands Bureau for Economic Policy Analysis

No 377, CPB Discussion Paper from CPB Netherlands Bureau for Economic Policy Analysis

Abstract: The existence of an urban wage growth premium is a well-established empirical fact. This article challenges the conventional view that faster wage growth for urban workers is caused by human capital spillovers. Instead, we find that the positive association between city size and individual wage growth is to a large extent driven by sorting of workers and firms, with inherently higher wage growth, into bigger cities. Having controlled for spatial sorting, we conclude that only young workers experience significant urban wage growth benefits. Wage level benefits of urban areas are important to all types of workers, especially the highly educated.

JEL-codes: J31 R23 (search for similar items in EconPapers)
Date: 2018-02
New Economics Papers: this item is included in nep-geo, nep-lma and nep-ure
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:cpb:discus:377

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