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Cities, Matching and the Productivity Gains of Agglomeration

43 Pages Posted: 25 Oct 2004  

Fredrik Andersson

Office of the Comptroller of the Currency (OCC)

Simon M. Burgess

University of Bristol - Department of Economics; University of Bristol - Leverhulme Centre for Market and Public Organisation (CMPO); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Julia Lane

Wagner Graduate School of Public Service; Institute for the Study of Labor (IZA)

Date Written: September 2004

Abstract

The striking geographical concentration of economic activities suggests that there are substantial benefits to agglomeration. The nature of those benefits remains unclear, however. In this paper, we take advantage of a new dataset to quantify the role of one of the main contenders: the matching of workers and jobs. Using individual level data for two large US states, we show that thicker urban labor markets are associated with more assortative matching between workers and firms. Another critical condition is required for this to generate higher productivity: complementarity of worker and firm quality in the production function. Using establishment level productivity regressions, we show that such complementarity is found in our data. Putting together the production and matching relationships, we show that production complementarity and assortative matching is an important source of the urban productivity premium.

Keywords: Urban productivity, matching, agglomeration

JEL Classification: J24, R12, R23

Suggested Citation

Andersson, Fredrik and Burgess, Simon M. and Lane, Julia, Cities, Matching and the Productivity Gains of Agglomeration (September 2004). CEPR Discussion Paper No. 4598. Available at SSRN: https://ssrn.com/abstract=609882

Per Fredrik Daniel Andersson

Office of the Comptroller of the Currency (OCC) ( email )

400 7th St. SW
Washington, DC 20219-0001
United States
202-649-5528 (Phone)
571-465-3246 (Fax)

Simon Burgess (Contact Author)

University of Bristol - Department of Economics ( email )

8 Woodland Road
Bristol BS8 ITN
United Kingdom
+44 117 928 8436 (Phone)
+44 117 928 8577 (Fax)

HOME PAGE: http://www.bris.ac.uk/Depts/Economics/department/profiles/burgess.htm

University of Bristol - Leverhulme Centre for Market and Public Organisation (CMPO)

12 Priory Road
Bristol BS8 1TN
United Kingdom

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Julia Lane

Wagner Graduate School of Public Service ( email )

The Puck Building
295 Lafayette Street, Second Floor
New York, NY 10012
United States

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://www.iza.org

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