The Effect of Working from Home on the Agglomeration Economies of Cities: Evidence from Advertised Wages

Abstract

Using advertised wages from job postings, we show that occupations with high levels of working from home (WFH) adoption during the COVID-19 pandemic saw a strong decrease in the urban wage premium. The decline in the urban wage premium is accompanied by an exodus of employment (based on firms' locations) from large cities. The empirical evidence points to weakened agglomeration economies in large cities among professions with high prevalence of WFH. A decomposition exercise reveals a decrease in the urban wage premium of relationship-building skills, suggesting that the decreased agglomeration effect is partially driven by reduced occurrence of interactive activities.

Keywords: Agglomeration, Productivity, Spillover, Urban Wage Premium, Working from Home, Remote, Virtual, WFH, Wages, Job Posting, COVID-19, Pandemic

JEL Classification: R12, R23, J24, J31