Working Paper: CEPR ID: DP5172
Authors: Giordano Mion; Paolo Naticchioni
Abstract: Using a matched employer-employee dataset on Italy we look at the spatial distribution of wages among provinces. We find evidence of both urbanization and market potential externalities, with the second one being more relevant. However, spatial sorting of skills is at work and explains a great deal of spatial wage variability. We further show that this sorting is only partially due to migrations and it dampens estimates of spatial externalities. The evidence concerning the sorting of firms is instead quite weak. In the paper, we also find support of self-selection of migrants based on skills and a moderate evidence of the wage growth hypothesis. Finally, we show that the well-established correlation between the employer size and workers' skills is not simply the outcome of a co-location phenomenon.
Keywords: firms; heterogeneity; panel data; skills; sorting; spatial externalities
JEL Codes: J31; J61; R23; R30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Urbanization externalities (R11) | Wages (J31) |
| Market potential (L10) | Wages (J31) |
| Economic density (R12) | Wages (J31) |
| Sorting of skills (C69) | Wage variability across regions (J39) |
| Firm characteristics (L25) | Wage outcomes (J31) |
| Firm size (L25) | Wages (J31) |