Spatial Sorting: Why New York, Los Angeles and Detroit Attract the Greatest Minds as Well as the Unskilled

48 Pages Posted: 14 Dec 2010  

Jan Eeckhout

University College London - Department of Economics

Roberto Pinheiro

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Kurt Schmidheiny

Universität Basel

Multiple version iconThere are 2 versions of this paper

Date Written: December 13, 2010

Abstract

We propose a theory of skill mobility across cities. It predicts the well documented city size-wage premium: the wage distribution in large cities first-order stochastically dominates that in small cities. Yet, because this premium is reflected in higher house prices, this does not necessarily imply that this stochastic dominance relation also exists in the distribution of skills. Instead, we find there is second-order stochastic dominance in the skill distribution. The demand for skills is non-monotonic as our model predicts a “Sinatra” as well as an “Eminem” effect: both the very high and the very low skilled disproportionately sort into the biggest cities, while those with medium skill levels sort into small cities. The pattern of spatial sorting is explained by a technology with a varying elasticity of substitution that is decreasing in skill density. Using CPS data on wages and Census data on house prices, we find that this technology is consistent with the observed patterns of skills.

Keywords: matching theory, sorting, general equilibrium, population dynamics, cities, wage distribution

JEL Classification: J31, R10, R23

Suggested Citation

Eeckhout, Jan and Pinheiro, Roberto and Schmidheiny, Kurt, Spatial Sorting: Why New York, Los Angeles and Detroit Attract the Greatest Minds as Well as the Unskilled (December 13, 2010). CESifo Working Paper Series No. 3274. Available at SSRN: https://ssrn.com/abstract=1724583

Jan Eeckhout

University College London - Department of Economics ( email )

30 Gordon Street
London WC1E 6BT, WC1H 0AX
United Kingdom

Roberto Pinheiro

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

Kurt Schmidheiny (Contact Author)

Universität Basel ( email )

Wirtschaftswissenschaftliche Fakultät
Peter Merian-Weg 6
Basel, CH-4002
Switzerland

HOME PAGE: http://wwz.unibas.ch/schmidheiny/

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