Wages and the City. Evidence from Italy

Abstract

We analyze empirically the impact of urban agglomeration on Italian wages. Using micro-data from the Bank of Italy's Survey of Household Income and Wealth for the years 1995, 1998, 2000 and 2002 on more than 22,000 employees distributed in 242 randomly drawn local labor markets, we test whether the structure of wages varies with urban scale. We find that every additional 100,000 inhabitants in the local labor market raises earnings by 0.1 percent. The use of a geographical approach enables us to state that this effect decays very rapidly with distance, losing significance beyond approximately 12 kilometers. We also find that urbanization does not affect returns to experience and that it reduces returns to education and to tenure with current firm, while providing a premium to worker supervisors. © 2007 Elsevier B.V. All rights reserved

Education, experience, and urban wage premium

“…Exceptions are Adamson et al (2004) who find a nonlinear relation between the urban wage premium and education level, and Lee (2010) who finds that the urban wage premium is negative for high-skilled health workers and positive for less skilled health workers. A Swedish study based on panel data of all private sector workers finds that the urban wage premium is largest for workers in occupations that demand non-routine tasks (Andersson et al, 2014), whereas, in Italy, return to higher education seems to be negatively correlated with regional population size (Di Addario and Patacchini, 2008).…”

“…On the other hand, low educated persons may have a higher capacity for learning because they have a lower stock of capital (Wheeler, 2004;Di Addario and Patacchini, 2008;Rosenthal and Strange, 2008;Matano and Naticchioni, 2012).…”

“…The size of the labor market affects returns to tenure via the transferability of human capital (Stevens, 1994;Di Addario andPatacchini, 2008, Lazear, 2009). In large urban labor markets, on-the-job training will improve the outside options and improve the bargaining position of workers versus firms.…”

Human Capital Externalities and the Urban Wage Premium: Two Literatures and their Interrelations

“…Consistent stylized facts for other countries are provided by Möller and Haas (2003) and Lehmer and Möller (2007) for Germany, Di Addario and Patacchini (2008) for Italy, Rice, Venables and Patacchini (2006) for Great Britain, and Combes, Duranton and Gobillon (2008) for France. The latter report that average wages in Paris are 15% higher than in other large French cities and 60% higher than in French rural areas.…”

Job search in thick markets

“…Finally, a few papers (e.g. Rosenthal and Strange, 2008;Combes et al, 2009;Di Addario and Patacchini, 2008) use soil-type characteristics to instrument agglomeration. Geological variables are good instruments to the extent that soil characteristics are not anymore determinants of current matching mechanisms or search behavior, while being good predictors of the population spatial distribution.…”