SKILL, AGGLOMERATION, AND INEQUALITY IN THE SPATIAL ECONOMY

Farid Farrokhi

International Economic Review, 2021, vol. 62, issue 2, 671-721

Abstract: This paper develops a spatial equilibrium model with skill heterogeneity and agglomeration forces that stem from local idea exchange. I structurally estimate the model using American census data to study policy effects on real wage inequality between and within college and noncollege workers. Using the estimated model, I find: (1) Skill composition and local spillovers, respectively, account for 30% and 70% of the city‐level relationship between productivity and employment. (2) Recent skill‐biased technological changes largely increased the welfare inequality between groups and within college workers. (3) Small transfers from larger to smaller cities may reduce inequality without changing aggregate welfare.

Date: 2021
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https://doi.org/10.1111/iere.12514

Related works:
Working Paper: Skill, Agglomeration, and Inequality in the Spatial Economy (2019)
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