Working Paper: CEPR ID: DP4598
Authors: Fredrik Andersson; Simon Burgess; Julia Lane
Abstract: The striking geographical concentration of economic activities suggests that there are substantial benefits to agglomeration. The nature of those benefits remains unclear, however. In this Paper we take advantage of a new dataset to quantify the role of one of the main contenders: the matching of workers and jobs. Using individual level data for two large US states we show that thicker urban labour markets are associated with more assortative matching between workers and firms. Another critical condition is required for this to generate higher productivity: complementarity of worker and firm quality in the production function. Using establishment level productivity regressions, we show that such complementarity is found in our data. Putting together the production and matching relationships, we show that production complementarity and assortative matching is an important source of the urban productivity premium.
Keywords: agglomeration; matching; urban productivity
JEL Codes: J24; R12; R23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| thicker urban labor markets (J49) | more assortative matching (C78) |
| more assortative matching (C78) | productivity increases (O49) |
| thicker urban labor markets (J49) | productivity increases (O49) |
| urban productivity premium (R11) | productivity differentials between firms in high-density areas vs low-density areas (R32) |