Wage growth, ability sorting, and location choice at labor-force entry: New evidence from U.S. Census data

Abstract

Using a sample of college graduates from the 2000U.S. Census, this paper estimates the relationship between the location of labor-force entry and wage growth. The results show faster wage growth among workers who spend their early working years in larger, more densely populated cities with more highly educated populations. The estimates suggest that, for an average-ability worker entering the labor force in a large city, the initial wage premium upon labor-force entry is 15.7 percent, and the wage-growth premium after 5 years is 7.2 percent. Individual ability boosts wage growth in large cities but not in small cities or rural areas. As a result, higher-ability college graduates sort themselves into larger cities when they enter the labor force, leading to an additional urban wage-growth gap of 3.2 percent after 5 years.