Working Paper: CEPR ID: DP4213
Authors: Andrew Bernard; Stephen Redding; Peter Schott; Helen Simpson
Abstract: Relative wages vary considerably across regions of the United Kingdom, with skill-abundant regions exhibiting lower skill premia than skill-scarce regions. This Paper shows that the location of economic activity is correlated with the variation in relative wages. UK regions with low skill premia produce different sets of manufacturing industries than regions with high skill premia. Relative wages are also linked to subsequent economic development: over time, increases in the employment share of skill-intensive industries are greater in regions with lower initial skill premia. Both results suggest firms adjust production across and within regions in response to relative wage differences.
Keywords: deindustrialization; diversification; cones; relative factor prices
JEL Codes: C14; F11; F14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| low skill premia (J31) | different sets of manufacturing industries (L60) |
| lower initial skill premia (J24) | greater increases in employment share of skill-intensive industries (J24) |
| lower initial skill premia (J24) | dynamic shift in industrial composition towards skill-intensive sectors (O14) |
| wage differences (J31) | firms adjust production (D21) |
| relative wage variation (J31) | inconsistent with standard multiple factor economic geography models (R12) |