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Return to skills and urban size: Evidence from the skill requirements of Hungarian firms

László Czaller () and Zoltan Hermann ()
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László Czaller: Agglomeration and Social Networks Lendület Research Group, Budapest, H-1097, Hungary and Institute of Economics, Centre for Economic and Regional Studies, H-1097, Hungary

No 2205, CERS-IE WORKING PAPERS from Institute of Economics, Centre for Economic and Regional Studies

Abstract: While most empirical studies document that cognitive and social skills are strong predictors of individual earnings, their impact is not homogenous in space. We argue that dense urban settings utilize cognitive and social skills more intensively than rural areas, therefore the labour market return to these skills is higher in cities. Using data from a representative survey recording the skills requirements of Hungarian firms, we show that social skills are rewarded more in dense urban areas. Surprisingly, this pattern is not observed for cognitive skills. We use instrumental variables strategy to correct for measurement errors in skills, and to deal with the endogeneity of agglomeration. Our results are robust to alternative agglomeration measures and a large set of controls, however, returns to skills vary considerably across worker groups and industries.

Keywords: agglomeration; cognitive and social skills; wages; urban labour markets (search for similar items in EconPapers)
JEL-codes: J24 J31 R12 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2022-02
New Economics Papers: this item is included in nep-geo, nep-lma, nep-tra and nep-ure
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