Spatial Wage Differentials and Agglomeration Externalities: Evidence from Indonesian Microdata

Masagus M Ridhwan

No WP/03/2020, Working Papers from Bank Indonesia

Abstract: This paper aims to examine sources of labor wage differentials and to investigate human capital externalities across Indonesian districts. Our study attempts to fill the gap in the standard literature, which mainly asserts thekey role of labor market characteristics in explaining the disparities. Based on microdata on individual workers from 2006-2015, we found that not only individual (labor) characteristics play a role in explaining the wage variations, but also regional endowments and agglomeration forces. The latter mainly results from spatial proximity of firms to other firms, from labor market pooling, and from knowledge spillovers. In addition, we also found strong evidence of positive human capital externalities, particularly in agglomerated regions. All in all, these findings may suggest the importance of skills and agglomeration for policymakers in boosting local productivity vis-Ã -visreducing income/wage inequality

Keywords: Local labor markets; Spatial wage differentials; Panel data analysiS (search for similar items in EconPapers)
JEL-codes: J31 J61 R23 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2020
New Economics Papers: this item is included in nep-geo, nep-sbm, nep-sea and nep-ure
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http://publication-bi.org/repec/idn/wpaper/WP032020.pdf First version, 2020 (application/pdf)

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Journal Article: Spatial wage differentials and agglomeration externalities: Evidence from Indonesian microdata (2021)
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