The Impact of Urban Density on Labour Productivity: Empirical Evidence from Thailand's Major Cities

This study investigates the relationship between urban density and productivity, specifically wages adjusted for provincial price differences, in four major cities of Thailand: Bangkok, Chiang Mai, Khon Kaen, and Songkla. Utilising the ArcGIS survey of Khon Thai 4.0 data, which measures urban density as the number of inhabitants per grid cell area, we employ the two-stage least squares estimation technique to address endogeneity concerns. Our findings demonstrate that higher urban density leads to an 8.9% increase in individual hourly wages at the 5% significance level. This supports the notion that densely populated urban areas foster enhanced productivity through agglomeration economies and knowledge spillovers. Furthermore, we observe the expected impacts of education, age, and gender on wages. Higher education is associated with an 8.2% increase in wages, highlighting its influence on labour productivity. Age exhibits an inverted U-shaped relationship, indicating that experience and skill development lead to higher wages up to a certain threshold. Male workers earn approximately 5.83% more than their female counterparts, revealing a gender wage gap. Moreover, our analysis reveals contrasting effects of higher urban density on skilled and unskilled workers. Skilled workers experience a significant 15.2% increase in wages, whereas the impact on unskilled workers remains modest at around 1.8%. Additionally, education significantly contributes to higher wages for both skilled and unskilled workers. This study provides valuable policy implications for promoting labour productivity and addressing urban development challenges in Thailand.