Insi de the Agglomeration Black Box: Sorting, Matching or Learning?
Abstract:
Why do workers earn higher wages in larger cities, and why does the city-size wage gap increase over the life-cycle? In this paper, I address this long-stand ing questions by building a structural model that I use to measure the cont ribution of sorting, returns to scale in the labor search process, and know ledge spillovers within cities. The model is estimated so as to replicate k ey features of the heterogeneity in workers' labor market experience across small and large cities. I validate the estimated model by testing its abil ity to generate migration choices that are consistent with some untargeted moments related to the selection into and the return to migration. A decomp osition of the city-size wage gap shows that both sorting of high-skilled w orkers and knowledge spillovers become increasingly important over the life -cycle, each accounting for about 40% of the gap after 20 years of labor ma rket experience - the remaining portion is generated by higher firm-worker match quality due to increasing returns to search. I then use this framewor k to study the aggregate and distributional consequences of changes in the house price elasticity to city-size (for example, due to housing regulation ). The benefit of lower living costs in a large city is counteracted by the deterioration in its worker composition, which limits its role as a place of knowledge diffusion.
DTSTAMP:20260404T232858Z DTSTART:20190619T130000Z DTEND:20190619T140000Z SEQUENCE:0 TRANSP:OPAQUE END:VEVENT END:VCALENDAR