In this paper, I document that workers in larger cities have significantly more occupational options than workers in smaller ones. They are able to form better occupational matches and earn higher wages. I also note differences in the occupational reallocation patterns across cities. I develop a dynamic model of occupational choice that microfounds agglomeration economies and captures the empirical patterns. The calibration of the model suggests that better occupational match quality accounts for approximately 35% of the observed wage premium and a third of the greater inequality in larger cities.
First version, June 2020
J24: Human Capital; Skills; Occupational Choice; Labor Productivity
J31: Wage Level and Structure; Wage Differentials
R23: Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics