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

81 Pages Posted: 20 May 2022 Last revised: 10 Aug 2023

See all articles by Sitian Liu

Sitian Liu

Queen's University - Department of Economics

Yichen Su

Federal Reserve Bank of Dallas

Date Written: August 9, 2023

Abstract

Using job posting wage data, we find a substantial decrease in the urban wage premium for occupations with high working-from-home (WFH) adoption following the COVID-19 pandemic. This decline is accompanied by an employment shift away from large employment centers. Through the lens of a stylized model, our empirical findings suggest that WFH adoption weakens the agglomeration economies of cities. A decomposition exercise reveals that the urban wage premium drop is partly driven by reduced wage returns for interpersonal skills in large cities, suggesting that the weakening of the agglomeration effect stems partially from reduced 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 (August 9, 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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