Spatial Wage Disparities: Sorting Matters!

Gilles Duranton, Pierre-Philippe Combes and Laurent Gobillon

No 4240, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Spatial wage disparities can result from spatial differences in the skill composition of the workforce, in non-human endowments, and in local interactions. To distinguish between these explanations, we estimate a model of wage determination across local labour markets using a very large panel of French workers. We control for worker characteristics, worker fixed-effects, industry fixed-effects, and the characteristics of the local labour market. Our findings suggest that individual skills account for a large fraction of existing spatial wage disparities with strong evidence of spatial sorting by skills. Interaction effects are mostly driven by the local density of employment. Not controlling for worker heterogeneity biases estimates of agglomeration economies by up to 100%. We also find evidence of various omitted variable biases and reverse causality between agglomeration and high wages. Finally, endowments only appear to play a small role.

Keywords: Local labour market; Spatial wage disparities; Panel data analysis; Sorting (search for similar items in EconPapers)
JEL-codes: J31 J61 R23 (search for similar items in EconPapers)
Date: 2004-02
New Economics Papers: this item is included in nep-geo and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (73)

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Journal Article: Spatial wage disparities: Sorting matters! (2008)
Working Paper: Spatial Wage Disparities: Sorting Matters! (2008)
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