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

75 Pages Posted: 20 May 2022 Last revised: 21 Feb 2023

See all articles by Sitian Liu

Sitian Liu

Queen's University - Department of Economics

Yichen Su

Federal Reserve Bank of Dallas

Date Written: February 20, 2023

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

Suggested Citation

Liu, Sitian and Su, Yichen, The Effect of Working from Home on the Agglomeration Economies of Cities: Evidence from Advertised Wages (February 20, 2023). Available at SSRN: https://ssrn.com/abstract=4109630 or http://dx.doi.org/10.2139/ssrn.4109630

Sitian Liu

Queen's University - Department of Economics ( email )

94 University Avenue
Kingston, Ontario K7L 3N6
Canada

HOME PAGE: http://www.sitian-liu.com

Yichen Su (Contact Author)

Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

HOME PAGE: http://https://sites.google.com/site/yichensu89/

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