Agglomeration Economies and the Urban Wage Premium in Australia

Jordy Meekes

Melbourne Institute Working Paper Series from Melbourne Institute of Applied Economic and Social Research, The University of Melbourne

Abstract: Understanding the benefits of dense agglomerations is important for decisions on where to live. This paper is the first to quantify the economic impact of urban density on individual wages, referred to as the urban wage premium, in Australia. By combining Household Income and Labour Dynamics in Australia Survey microdata on 13,112 employed individuals and regional-level population data, population density effects on individual hourly wages are studied over the period 2001 to 2019. A unique feature of this paper is to apply a flow-based clustering algorithm that uses commuting flows to define spatial structures, which are compared with the Australian Statistical Geography Standard spatial structures. The Ordinary Least Squares estimate of the urban wage premium peaks at 2.7 per cent. Controlling for individual fixed effects, the estimate peaks at 1.6 per cent. This evidence suggests that wages increase by 1.6 to 2.7 per cent if local density doubles.

Keywords: Urban wage premium; Agglomeration; Population density; Wages; Australia; HILDA Survey (search for similar items in EconPapers)
JEL-codes: J31 R11 R12 R23 (search for similar items in EconPapers)
Pages: 25pp
Date: 2021-09
New Economics Papers: this item is included in nep-geo and nep-ure
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Journal Article: Agglomeration Economies and the Urban Wage Premium in Australia (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:iae:iaewps:wp2021n21

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