Author(s)  
Shihe Fu, Stephen L. Ross

This paper tests whether the correlation between wages and the spatial concentration of employment can be explained by unobserved worker productivity differences. Residential location is used as a proxy for a worker's unobserved productivity, and average workplace commute time is used to test whether location-based productivity differences are compensated away by longer commutes. Analyses using confidential data from the 2000 Decennial Census Long Form find that the agglomeration estimates are robust to comparisons within residential location and that the estimates do not persist after controlling for commuting costs suggesting that the productivity differences across locations are not due to productivity differences across individuals.

JEL Codes  
R13: General Equilibrium and Welfare Economic Analysis of Regional Economies
R30: Real Estate Markets, Production Analysis, and Firm Location: General
J24: Human Capital; Skills; Occupational Choice; Labor Productivity
J31: Wage Level and Structure; Wage Differentials
Keywords  
agglomeration
wages
sorting
locational equilibrium
human capital
externalities