Abstract

The article discusses a theory on the relationship between the intensity of localized knowledge spillovers and the inequality of wages between skilled and unskilled individuals. Data from 146 U.S. cities were examined to support the theory that the more intense localized knowledge spillovers reduce the complementarity between the skilled and unskilled, resulting in increased inequality in their wages and productivity. It was found that more open cultures can generate higher wage inequality between skills. The importance of cultural change in fostering the interchange of information is also discussed.

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