Wage Premia in Employment Clusters: How Important is Worker Heterogeneity?
Shihe Fu, Stephen Ross
Journal of Labor Economics
#002155 20131014 (published)
This paper tests whether the correlation between wages and the spatial concentration of employment can be explained by unobserved worker productivity differences. Residential location is used as a proxy for a worker’s unobserved productivity, and average workplace commute time is used to test whether location-based productivity differences are compensated away by longer commutes. Analyses using confidential data from the 2000 Decennial Census Long Form find that the agglomeration estimates are robust to comparisons within residential location and that the estimates do not persist after controlling for commuting costs suggesting that the productivity differences across locations are not due to productivity differences across individuals.
JEL-Codes: R13, R30, J24, J31
Keywords: Agglomeration, Wages, Sorting, Locational Equilibrium, Human Capital Externalities

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