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

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  • Kent Eliasson
  • Olle Westerlund

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.

Suggested Citation

  • Kent Eliasson & Olle Westerlund, 2023. "The urban wage premium and spatial sorting on observed and unobserved ability," Journal of Economic Geography, Oxford University Press, vol. 23(3), pages 601-627.
    • Handle: RePEc:oup:jecgeo:v:23:y:2023:i:3:p:601-627.
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    More about this item

    Keywords

    Urban wage premium; university graduates; agglomeration economies; spatial sorting;
    All these keywords.

    JEL classification:

    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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