Urban Wage Premium Research Articles

Occupational specialization, skills, and urban wage premium in Brazil

Occupational specialization, skills, and urban wage premium in Brazil

Re-evaluating the urban wage premium: The changing roles of geographical and job transitions for women and men

This paper investigates gender as a new source of heterogeneity in the urban wage premium, using a representative panel of 1.2 million worker observations in Great Britain over the period 1999–2019. Pre-2008, women's urban wage premium was more than twice as large as men's (2.8% versus 1.2%), but this difference disappears during the Financial Crisis as women's urban wage premium drastically and permanently drops. This drop is due to the disappearance of women's relative sharing advantages. Moreover, contrary to men, women's urban wage premium is now driven by a wage penalty incurred when changing occupation while transitioning from urban to rural jobs.

Trade liberalization, city size, and urban wage premium: evidence from China’s city and individual micro-data

In the context of trade liberalization and new urbanization, it is important to study how urban openness leads to wage premiums and improvements in income distribution. This paper utilizes micro-data from the Chinese Household Income Project and matching data from 144 cities to investigate the relationship between trade liberalization, urban scale, and urban wage premiums. The results indicate that trade liberalization significantly increases urban wage premiums, which is particularly evident during the early stages of China’s accession to the WTO. However, this effect may fluctuate over time. Surprisingly, in China, the urban scale can increase labor wage income, but it does not magnify the wage premium effect of trade liberalization. Heterogeneity tests based on regions, firms, and income groups suggest that the wage premium effect of trade liberalization is higher in eastern and central region cities than in western region cities, labor wage growth in the service sector is more pronounced than in the industrial sector, and the impact of trade liberalization on wage growth for the middle and lower-income groups is greater than for the high-income group, which helps to narrow income disparities among different groups. These findings are of great policy significance for improving income distribution through labor market liberalization. In this context, they highlight the importance of comprehensive openness and new urbanization in China.

Gender Gaps in the Urban Wage Premium

Gender Gaps in the Urban Wage Premium

Does urbanization increase inequality? Race, gender, and the urban wage premium

ABSTRACT Workers in denser, larger cities have higher wages, though recent research suggests this “urban wage premium” varies for different groups. This paper asks whether changes in density within city-regions are associated with changes in racial and gender inequality. The main results suggest that a 100 person per square mile increase in population density is associated with 32.9, 46.1, and 27.5 cent increases in hourly Black-White, Latinx-White, and female-male wage inequality respectively. I conceptualize and find suggestive evidence in favor of a spatial mechanism that channels this relationship—as cities get denser, congestion also rises, with disproportionately adverse effects for women and people of color. I show that the relationship between changes in density and changes in inequality is higher when commute times also rise, and that increasing density within cities is associated with increasing commuting inequality. Overall, this research highlights how the process of urbanization may contribute to social inequality.

Moving to density: Half a century of housing costs and wage premia from Queens to King Salmon

Have workers stopped moving to the highest-density, highest-productivity places in the country because of a decline in the urban wage premium, or because the rent is too high? We analyze how important these two explanations are by studying them in one and the same empirical analysis. We find that non-college workers now effectively face a housing-inclusive urban wage penalty, while workers with college education continue to face a significant urban wage premium. We relate these findings to the share of native-born cross-state migrants across different parts of the country, and find that native-born cross-state migrants, especially non-college workers, have become less likely to live in the highest-productivity areas.

The urban wage premium and spatial sorting on observed and unobserved ability

Abstract We estimate static and dynamic agglomeration effects on earnings among university graduates using Swedish longitudinal population register data. The prime interest lies with whether and how the dynamic effects of big city work experience vary by observed ability of workers and whether the effects are portable after relocation. Urban wage premium and spatial sorting of university graduates are analysed by using information on school grades, parental education and university rank. We find that the value of accumulated big city work experience increases with observed ability. The dynamic premium of working in bigger cities is not lost when moving to smaller cities, suggesting that it reflects learning effects and human capital accumulation. Our findings indicate systematic spatial sorting on observed indicators of ability as well as on unobserved productive traits. Sorting on unobserved abilities is driven primarily by graduates in the upper part of the observed ability distribution and is apparent also when taking dynamic learning effects into consideration.

Urban wage premium and informal agglomeration in Vietnam

ABSTRACT Despite the ongoing debate on the interaction between the informal sector and agglomeration economies in cities, little is known about whether informal agglomeration generates the wage premium in cities in developing countries. This paper provides empirical evidence on the impacts of urbanization and localization, separated from formal and informal sources, on the earnings of informal workers and how the concentration of informal workers affects the wages of formal employees in cities in Vietnam. Using data from the 2013-2020 Vietnam Labor Force Surveys, this paper shows higher wages in bigger cities. In addition to workers’ skills and local non-human endowment, agglomeration generates the wage premium in cities. Nevertheless, the impacts are different between small and large cities. Our results show that while informal workers benefit from urbanization and localization in large cities, their existence is over-concentrated in small cities and crowds out the formal sector in large cities of Vietnam. Thus, urban development policies should focus on the over-concentration of informal sector workers in cities.

Urban wage premium for women: evidence across the wage distribution

The urban wage premium (UWP), that is, the phenomenon of higher wages in denser areas, is rarely separately estimated for men and women. Yet, men and women behave differently in the labor market. This study sought to uncover whether (i) agglomeration economies in dense areas of Brazil differently benefit men and women; (ii) the female and male UWPs change across the wage distribution, and (iii) whether the male and female UWPs differ across formal and informal jobs. We do so using Brazil’s National Continuous Household Sample Survey (PNADC/IBGE) gathered between 2012 and 2019. We found that the female UWP is on average 11.3%, almost double the average male UWP of 5.7%. We also found that the female UWP was higher in formal and informal jobs and across various agglomeration levels. Quantile regressions show that the magnitudes of and gender differences in the UWP increase with wages. Studies that exclude women may thus underestimate the UWP, especially for high-paying jobs. The average UWP hides important heterogeneity that exists across the wage distribution and formality status.

Assortative labor matching, city size, and the education level of workers

We investigate the heterogeneity of assortative labor matching with respect to geography, skills, and tasks. Our contribution is to separate plant quality by education level and occupation tasks using the AKM-model. We introduce a geology-related instrument to analyze the city effect and address limited mobility bias. Using rich administrative worker-plant dataset for Norway, we show that matching of the college educated have a strong city effect. The IV estimates indicate that a doubling of city size increases the correlation between worker and plant quality by 9 percentage points. A wage decomposition shows that matching accounts for 22% of the urban wage premium adjusted for sorting. In terms of occupations, better matching in cities is observed only for non-routine abstract tasks.

Endogenous local labour markets, regional aggregation and agglomeration economies

ABSTRACT We examine the role of spatial unit size in measuring the urban wage premium. Using Dutch administrative data, we define local labour markets (LLMs) based on employees’ commuting outcomes, gender and educational attainment. We show that high-educated employees and male employees have a relatively large LLM. Using a continuum of regional aggregations, we find that urban wage premium estimates increase over the level of aggregation, also for different subgroups of employees. We show that the modifiable areal unit problem (MAUP) does not explain this pattern, consistent with stronger agglomeration externalities at higher regional aggregation levels.

The urban wage premium is disappearing in U.S. micropolitan areas.

A key driver of urbanization is the pursuit of economic opportunities in cities. One such opportunity is the promise of higher wages in larger cities, a phenomenon known as the urban wage premium. While an urban wage premium has been well-documented among U.S. metropolitan areas, little is known about its existence in micropolitan areas, which represent an important link between rural and dense urban areas. Here we measure the power law scaling coefficient of annual wages versus employment for both U.S. metropolitan and micropolitan areas over a 37-year period. We take this coefficient to be a quantification of the urban wage premium for each type of urban area and find the relationship is superlinear in all years for both area types. Though both area types once had wage premiums of similar magnitude, the wage premium in micropolitan areas has steadily declined since the late 1980s while in metropolitan areas it has generally increased. This growing gap between micropolitan and metropolitan wage premiums is ongoing in parallel to other diverging characteristics, such as inequality and voting behavior, suggesting that our result is part of a broader social, cultural, and political divergence between small and large cities. Finally, we speculate that if urban residents respond to the COVID-19 crisis by migrating, the trends we describe may change significantly.

The relative importance of portable and non-portable agglomeration effects for the urban wage premium

Using administrative data for West Germany, we study the relative importance of portable and non-portable agglomeration effects for the urban wage premium. In doing so, we advance the established strategy of estimating wage-tenure profiles for urban-rural and rural-urban movers by adding worker, firm, and match fixed effects. This allows us to distinguish unambiguously between both types of agglomeration effects. Our results show that portable and non-portable agglomeration effects equally contribute to the urban wage premium. Moreover, portable agglomeration effects are not only observed in the biggest cities. Instead, the speed of human capital accumulation continuously increases with city size.

Urbanization favors high wage earners

As cities increase in size, total wages grow superlinearly, meaning that average wages are higher in larger cities. This phenomenon, known as the urban wage premium, supports the notion that urbanization and the growth of cities contribute positively to human well-being. However, it remains unclear how the distribution of wages changes as cities grow. Here we segment the populations of U.S. cities into wage deciles and determine the scaling coefficient of each decile’s aggregate wages versus city size. We find that, while total wages of all deciles grow superlinearly with city size, the effect is uneven, with total wages of the highest wage earners growing faster than all other deciles. We show that this corresponds with the predominance of high-wage jobs in larger cities. Thus, the effects of urbanization are mixed -- it is associated with higher average wages but with increasing inequality, thus inhibiting prospects for long-term sustainability.

Trade Liberalization, City Size and Urban Wage Premium: Evidence from China's City and Individual Micro Data

Trade Liberalization, City Size and Urban Wage Premium: Evidence from China's City and Individual Micro Data

Worker and firm heterogeneity, agglomeration, and wages in Brazil

AbstractThis paper analyses the influence of agglomeration and spatial sorting on wages in Brazilian cities. The empirical strategy is based on a two‐step estimation. The first step estimates a wage equation with the observed characteristics of workers and firms and location effects. The second step decomposes the location effects into employment density and fixed effects of firm and worker. We estimate an urban wage premium for a developing country with the simultaneous inclusion of worker and firm fixed effects, instrumental variables, and nighttime lights. We find agglomeration effects of 4.3–5.7%, which are larger than those obtained for developed countries.

Cities and tasks

This paper explores the relationship between routine-biased technological change and agglomeration economies. Using administrative data from the Netherlands, we first show that in dense areas, jobs are less routine-task intensive (i.e. less repetitive and automatable), meaning that jobs cover a larger spectrum of tasks. We then explore how the routine intensity of jobs affects the urban wage premium. We find that the urban wage premium is higher for workers performing non-routine tasks, particularly analytic tasks, while it is absent for workers in routine task intensive jobs. These findings also hold within skill groups and suggest that routinisation increases spatial wage inequality within urban areas. We further provide suggestive evidence that a better matching of skills to jobs and increased learning opportunities in cities can explain these findings.

Agglomeration Economies and the Urban Wage Premium in Australia

Understanding the benefits of dense agglomerations is important for decisions on where to live and for our understanding of deep economic disadvantage. This paper is the first to quantify the economic impact of urban density on individual wages, referred to as the urban wage premium, in Australia. By combining Household Income and Labour Dynamics in Australia Survey microdata on 13,112 employed individuals and regional-level population data, population density effects on individual hourly wages are studied over the period 2001 to 2019. A unique feature of this paper is to apply a flow-based clustering algorithm that uses commuting flows to define spatial structures, which are compared with the Australian Statistical Geography Standard spatial structures. The Ordinary Least Squares estimate of the urban wage premium peaks at 2.7 per cent. Controlling for individual fixed effects, the estimate peaks at 1.6 per cent. This evidence suggests that wages increase by 1.6 to 2.7 per cent if local density doubles.

Scaling of Inequality: Urbanization Favors High Wage Earners

As cities increase in size, total wages grow superlinearly, meaning that average wages are higher in larger cities. This phenomenon, known as the urban wage premium, supports the notion that urbanization and the growth of cities contribute positively to human well-being. However, it remains unclear how the distribution of wages changes as cities grow. Here we segment the populations of U.S. cities into wage deciles and determine the scaling coefficient of each bracket's aggregate wages versus city size. We find that, while total wages of all these categories grow superlinearly with city size, the effect is uneven, with total wages of the highest wage earners growing faster than all other wage brackets. We show that this is partly due to the predominance of high-wage jobs in larger cities. Thus, the effects of urbanization are mixed -- it brings higher average wages but with increasing inequality, thus inhibiting prospects for long-term sustainability.

The Urban Wage Premium in Imperfect Labor Markets

Boris Hirsch, Elke J. Jahn, Alan Manning and Michael Oberfichtner Boris Hirsch is Professor of Economics at Leuphana University of Lüneburg and an affiliate of the IWH and IZA. Elke J. Jahn is Professor of Economics at Bayreuth University, Distinguished Researcher at the Institute for Employment Research (IAB), and an affiliate of the IZA. Alan Manning is Professor of Economics at the London School of Economics and Director of the Community Programme at the Centre for Economic Performance at the LSE. Michael Oberfichtner is Researcher at the Institute for Employment Research (IAB).