Occupational Matching and Cities

Abstract

In this paper, I document that workers in larger cities have significantly more occupational options than workers in smaller ones. They are able to form better occupational matches and earn higher wages. I also note differences in occupation reallocation patterns across cities. I develop a dynamic model of occupation choice that microfounds agglomeration economies and captures the empirical patterns. The calibration of the model suggests that better occupational match quality accounts for approximately 35 percent of the observed wage premium and one-third of the greater inequality in larger cities. (JEL J24, J31, J41, J63, R23)