Journal Article

Cities, Workers, and Wages: A Structural Analysis of the Urban Wage Premium

E. D. Gould

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 74, issue 2, pages 477-506
Published in print April 2007 | ISSN: 0034-6527
Published online April 2007 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/j.1467-937X.2007.00428.x
Cities, Workers, and Wages: A Structural Analysis of the Urban Wage Premium

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  • Demand and Supply of Labour
  • Wages, Compensation, and Labour Costs
  • Household Analysis

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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.

Keywords: J24; J31; R23

Journal Article.  12713 words.  Illustrated.

Subjects: Demand and Supply of Labour ; Wages, Compensation, and Labour Costs ; Household Analysis

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