Urbanization Externalities, Market Potential and Spatial Sorting of Skills and Firms

Giordano Mion and Paolo Naticchioni

No 5172, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Using a matched employer-employee dataset on Italy we look at the spatial distribution of wages among provinces. We find evidence of both urbanization and market potential externalities, with the second one being more relevant. However, spatial sorting of skills is at work and explains a great deal of spatial wage variability. We further show that this sorting is only partially due to migrations and it dampens estimates of spatial externalities. The evidence concerning the sorting of firms is instead quite weak. In the paper, we also find support of self-selection of migrants based on skills and a moderate evidence of the wage growth hypothesis. Finally, we show that the well-established correlation between the employer size and workers' skills is not simply the outcome of a co-location phenomenon.

Keywords: Panel data; Skills; Firms' heterogeneity; Sorting; Spatial externalities (search for similar items in EconPapers)
JEL-codes: J31 J61 R23 R30 (search for similar items in EconPapers)
Date: 2005-08
New Economics Papers: this item is included in nep-geo, nep-lab and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (47)

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