Urbanization Externalities, Market Potential and Spatial Sorting of Skills and Firms

36 Pages Posted: 5 Oct 2005

See all articles by Giordano Mion

Giordano Mion

University of Sussex - Department of Economics; London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Paolo Naticchioni

University of Rome I; University of Cassino

Date Written: August 2005

Abstract

Using a matched employer-employee dataset on Italy we look at the spatial distribution of wages among provinces. We find evidence of both urbanization and market potential externalities, with the second one being more relevant. However, spatial sorting of skills is at work and explains a great deal of spatial wage variability. We further show that this sorting is only partially due to migrations and it dampens estimates of spatial externalities. The evidence concerning the sorting of firms is instead quite weak. In the paper, we also find support of self-selection of migrants based on skills and a moderate evidence of the wage growth hypothesis. Finally, we show that the well-established correlation between the employer size and workers' skills is not simply the outcome of a co-location phenomenon.

Keywords: Panel data, skills, firms' heterogeneity, sorting, spatial externalities

JEL Classification: J31, J61, R23, R30

Suggested Citation

Mion, Giordano and Naticchioni, Paolo, Urbanization Externalities, Market Potential and Spatial Sorting of Skills and Firms (August 2005). CEPR Discussion Paper No. 5172. Available at SSRN: https://ssrn.com/abstract=821105

Giordano Mion (Contact Author)

University of Sussex - Department of Economics ( email )

Falmer, Brighton BN1 9SL
United Kingdom

HOME PAGE: http://sites.google.com/site/giordanomionhp/

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Paolo Naticchioni

University of Rome I ( email )

Piazzale Aldo Moro 5
Roma, Rome 00185
Italy

University of Cassino ( email )

Cassino
Italy

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