Estimating Agglomeration Economies with History, Geology, and Worker Effects
Year: 2010
Type: book-chapter
Abstract: This chapter addresses the issues of endogenous quantity and endogenous quality of labor, provides a simple model of productivity and wages in cities, and discusses the two main estimation issues. It presents the wage data and the worker-fixed approach to the endogenous quality of labor bias. Cities attract skilled workers so that the effects of skills and urban agglomeration are confounded. Urban agglomeration is a consequence of high local productivity rather than a cause. An instrumental variable approach introduces a new set of geological instruments in addition to standard historical instruments. Furthermore, the chapter shows the results for wages and productivity. Long lags of endogenous explanatory variables make for strong instruments, and geological characteristics are more complicated instruments to play with. The simultaneity problem between employment density and local wages/productivity is relatively small. Better workers are located in more productive areas. This sorting of workers by skills (observed and unobserved) is quantitatively more important than the endogenous quantity of labor bias. The future work would develop more sophisticated approaches to deal with the sorting of workers across places.
Parent work: Agglomeration Economics
Authors: Pierre-Philippe Combes, Gilles Duranton, Laurent Gobillon, Sébastien Roux
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1883187236