Wage Distribution and the Spatial Sorting of Workers and Firms
DE-ISFOL La Sapienza Discussion Paper
34 Pages Posted: 5 Feb 2010
Date Written: February 5, 2010
Spatial sorting plays an important role in accounting for disparities in average wages among locations. This paper shows that sorting also matters when addressing the relation between spatial externalities and wage distribution, i.e. across workers located at different percentiles of the wage distribution. Using Italian employer-employee panel data we can control for individual and firm heterogeneity as well as for unobserved individual heterogeneity by means of quantile fixed effects estimates. After controlling for the sorting of workers the spatial externality impacts dampen along the whole wage distribution and generally remain positive only in the upper tail. As for firm sorting, it becomes uniform along the wage distribution once individual fixed effects are considered. We also point out that the impact of worker sorting is not homogeneous across sectors: along the density dimension it occurs mainly in skill-intensive sectors, while along the specialization dimension it is concentrated in the unskill-intensive sectors.
Keywords: Spatial Externalities, Spatial Sorting, Wage Distribution, Quantile Fixed Effects
JEL Classification: J31, J61, R23, R30
Suggested Citation: Suggested Citation