Spatial Wage Disparities: Sorting Matters!

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local labour markets
spatial wage disparities
panel data analysis
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Combes, Pierre-Philippe
Duranton, Gilles
Gobillon, Laurent
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Spatial wage disparities can result from spatial differences in the skill composition of the workforce, in non-human endowments, and in local interactions. To distinguish between these explanations, we estimate a model of wage determination across local labour markets using a very large panel of French workers. We control for worker characteristics, worker fixed effects, industry fixed effects, and the characteristics of the local labour market. Our findings suggest that individual skills account for a large fraction of existing spatial wage disparities with strong evidence of spatial sorting by skills. Interaction effects are mostly driven by the local density of employment. Not controlling for worker heterogeneity leads to very biased estimates of interaction effects. Endowments only appear to play a small role.

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2008-03-01
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Journal of Urban Economics
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At the time of publication, author Gilles Duranton was affiliated with the University of Toronto. Currently, he is a faculty member at the Real Estate Department at the University of Pennsylvania.
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