Working Paper: CEPR ID: DP9243
Authors: Jorge de la Roca; Diego Puga
Abstract: Individual earnings are higher in bigger cities. We consider three reasons: spatial sorting of initially more productive workers, static advantages associated with workers' current location, and learning by working in big cities. Using rich administrative data for Spain, we find that workers in bigger cities do not have higher unobserved initial ability, as reflected in individual fixed-effects. Instead, they obtain an immediate static premium while working in bigger cities and also accumulate more valuable experience, which increases their earnings faster. The additional value of experience accumulated in bigger cities persists even after workers move away and is even stronger for those with higher unobserved initial ability. This combination of effects explains both the higher mean and the greater dispersion of earnings in bigger cities.
Keywords: agglomeration economies; city size; earnings premium; learning
JEL Codes: J31; R10; R23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| City Size (R12) | Earnings (J31) |
| City Size (R12) | Experience Accumulation (E22) |
| Experience Accumulation (E22) | Earnings Growth (O49) |
| City Size (R12) | Earnings Growth (O49) |
| Initial Ability (Y20) | Earnings Growth (O49) |
| City Size + Initial Ability (R12) | Earnings Growth (O49) |