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Agglomeration Economies and the Urban Wage Premium in Australia

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  • Jordy Meekes

    (Melbourne University)

Abstract

This paper is the first to quantify the economic impact of urban density in Australia on individual wages, referred to as the urban wage premium. 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 aggregations. The urban wage premium is estimated conditional on the specific aggregation. 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 per cent to 2.7 per cent if local density doubles.

Suggested Citation

  • Jordy Meekes, 2022. "Agglomeration Economies and the Urban Wage Premium in Australia," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 25(1), pages 25-54.
    • Handle: RePEc:ozl:journl:v:25:y:2022:i:1:p:25-54
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    1. Botha, Ferdi & Kabátek, Jan & Meekes, Jordy & Wilkins, Roger, 2023. "The Effects of Commuting and Working from Home Arrangements on Mental Health," IZA Discussion Papers 16618, Institute of Labor Economics (IZA).
    2. Antonio Andrés Bellofatto & Begoña Domínguez & Elyse C. Dwyer, 2023. "Uncovering Urban Advantages: Evidence from Australian Firm‐Level Data," The Economic Record, The Economic Society of Australia, vol. 99(S1), pages 13-34, December.

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    More about this item

    Keywords

    Urban wage premium; Agglomeration; Population density; Wages; Australia; HILDA Survey;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • 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

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