Spatial Sorting

Abstract

We investigate the role of skill complementarities in production and mobility across cities. The nature of the complementarities determines the equilibrium skill distribution across cities. With extreme-skill complementarity, the skill distribution has thicker tails in large cities; with top-skill complementarity, there is first-order stochastic dominance. Using wage and housing price data, we find robust evidence of thick tails in large cities: large cities disproportionately attract both high-and lowskilled workers, while average skills are constant across city size. This pattern of spatial sorting is consistent with extreme-skill complementarity, where the productivity of high-skilled workers and of the providers of low-skilled services are mutually enhanced. If I can make it there I'll make it anywhere. ðFrank Sinatra, "New York, New York"Þ Rock Bottom, yeah I see you, all my Detroit people. ðEminem, "Welcome 2 Detroit"Þ We are grateful to numerous colleagues for detailed discussion and insightful comments. We also benefited from the feedback of many seminar audiences. Eeckhout gratefully acknowledges support by the European Research Council, grant 208068, and Schmidheiny

Assortative Matching With Large Firms

“…The paper proves existence of a competitive equilibrium in this generalized location model which endogenously can generate multiple business centers. For a model with spatial sorting between cities, see Eeckhout, Pinheiro, and Schmidheiny (2014). 26 A similar functional form was used in Van Nieuwerburgh and Weill (2010) to consider differences between cities rather than within the city, where, in their model, g(y) is replaced by a more agnostic time-varying productivity term that differs across cities.…”

Divergence of Human Capital in Cities in the People's Republic of China: Exploring Complementarities and Spatial Agglomeration of the Workforce with Various Skills

“…The proportion of highly skilled labor is higher, while the average skill level is almost the same as in smaller cities (Bacolod et al 2009), and skill levels in major cities have greater variance (Gautier and Teulings 2009). Eeckhout et al (2014) studied skill complementarity from the perspective of urban economics for the first time, and analyzed skill distribution in large and small cities based on US data. They found a higher proportion of high-skilled and low-skilled labor in big cities, and a lower proportion of medium-skilled labor, indicating that big cities promote skill complementarity.…”

“…Notes: The figure on the left is skill distribution in the PRC's cities. On the right is skill distribution in US cities, which is from Eeckhout et al (2014). The skill level is the adjusted results of the annual wage on the housing price, and the expression is = (1 − ) (1− ) � ，where α = 0.24 in the US (Eeckhout et al 2014) and α = 0.3 in the PRC.…”

“…Source: The figure on the left is from author's calculation; the figure on the right is from Eeckhout et al (2014), Figure 1.…”

Beggar thy neighbour, beggar thy neighbourhood

“…The rich also benefit from a having a more efficient low‐skill labour force, with labour complementarity ensuring that the rich have a stake in the poor's productivity. Eeckhout et al () find strong evidence in U.S. data for ‘extreme‐skill’ complementarity, where high‐skill individuals' productivity is boosted by the presence of low‐skill workers. Therefore, the poor's productivity loss would be of concern to the rich, with the loss reducing their own incomes through the complementarity effect.…”