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The Effect of Working from Home on the Agglomeration Economies of Cities: Evidence from Advertised Wages

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  • Liu, Sitian
  • Su, Yichen

Abstract

We analyze the effect of working from home on the agglomeration economies of large cities and the aggregate productivity implications of such effect. Using advertised wages from job ads, we show that occupations with the highest work-from-home adoption during the COVID-19 pandemic saw a strong decrease in the urban wage premium. The decline in the urban wage premium is accompanied by an exodus of employment (based on firms' locations) from large cities to small cities. In contrast, occupations with low or moderate levels of work-from-home adoption saw little overall reduction in the urban wage premium. The empirical evidence in our paper points to weakened agglomeration economies in large cities among professions with the highest prevalence of working from home. A decomposition exercise reveals that a sizable portion of the decline in the urban wage premium is driven by the decline in the urban wage premium of relationship-building skills, suggesting the decreased agglomeration effect in large cities is at least partially a result of reduced occurrence of interactive activities.

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  • Liu, Sitian & Su, Yichen, 2022. "The Effect of Working from Home on the Agglomeration Economies of Cities: Evidence from Advertised Wages," MPRA Paper 113108, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:113108
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    Cited by:

    1. Steven Bond-Smith & Philip McCann, 2022. "The work-from-home revolution and the performance of cities," Working Papers 2022-6, University of Hawaii Economic Research Organization, University of Hawaii at Manoa.
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    3. Sam Ruiqing Cao & Marco Iansiti, 2022. "Organizational Barriers to Transforming Large Finance Corporations: Cloud Adoption and the Importance of Technological Architecture," CESifo Working Paper Series 10142, CESifo.

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    More about this item

    Keywords

    Agglomeration; Productivity; Spillover; Urban Wage Premium; Working from Home; Remote; Virtual; WFH; Wages; Job Posting; COVID-19; Pandemic;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • 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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