Spatial wage disparities: Sorting matters! |
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| Authors: | Pierre-Philippe Combes Gilles Duranton Laurent Gobillon |
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| Institution: | aGreqam University of Aix-Marseille, 2, Rue de la Charité, 13236 Marseille cedex, France;bDepartment of Economics, University of Toronto, 150 Saint George Street, Toronto, Ontario, Canada M5S 3G7;cInstitut National d'Etudes Démographiques, 133 bd. Davout, 75980 Paris cedex 20, France |
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| Abstract: | 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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| Keywords: | Local labour markets Spatial wage disparities Panel data analysis Sorting |
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