Cities, workers, and wages: A structural analysis of the urban wage premium

E. D. Gould*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

81 Scopus citations

Abstract

Workers earn higher wages in cities vs. rural areas. This gap could arise because cities make workers more productive, or it could be the result of a non-random selection of workers into cities based on their ability and their endogenous history of career choices. To untangle these issues, this paper estimates a dynamic programming model, which embeds the choice of residing in a city or rural area within a model of career choices over time. After controlling for all the sources of selection and endogeneity, the estimates indicate that a given worker does earn more in the city for white-collar work, but not for blue-collar work. In addition, city work experience is found to be worth more than rural work experience in the rural area for white-collar work, but not for blue-collar work. These results support the interpretation that cities make white-collar workers more productive and suggest that workers may consider moving to the city not only in terms of locational choice, but also as a form of human capital investment.

Original languageAmerican English
Pages (from-to)477-506
Number of pages30
JournalReview of Economic Studies
Volume74
Issue number2
DOIs
StatePublished - Apr 2007

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