This paper estimates individual wage equations to test two rival non‐nested theories of economic agglomeration, namely New Economic Geography (NEG), as represented by the NEG wage equation and urban economic (UE) theory, in which wages relate to employment density. In the U.K. context, we find that for male respondents, there is no significant evidence that wage levels are an outcome of the mechanisms suggested by NEG or UE theory, but this is not the case for female respondents. We speculate on the reasons for the gender difference.
Fingleton B., Longhi S. (2013) The Effects of Agglomeration on Wages: Micro-Level Evidence, Journal of Regional Science, 53(3) 443-463.
This paper combines individual data from the British Household Panel Survey and yearly population estimates for England to analyse the impact that cultural diversity has on individual wages. Do people living in more diverse areas earn higher wages after controlling for other observable and unobservable characteristics? The results show that cultural diversity is positively associated with wages, but only when cross-section data are used, while panel data estimations show no impact of diversity. Since natives with comparatively higher skills – and wages – tend to self-select into more diverse areas, cross-section analyses may produce upwardly biassed results.
Longhi S. (2013) Impact of Cultural Diversity on Wages, Evidence from Panel Data, Regional Science and Urban Economics, 43(5) 797-807.
The wage curve literature consistently finds a negative relationship between regional unemployment rates and regional wages; the most widely accepted theoretical explanations interpret the unemployment rate as a measure of job competition. This paper proposes new ways of measuring job competition, alternative to the unemployment rate, and finds that the negative relationship still holds when job competition is measured following the job search literature. While for men the wage impact of the theoretically based measures of job competition is rather similar to the wage impact of the unemployment rate, for women the difference is substantial.
Longhi S. (2012) Job Competition and the Wage Curve, Regional Studies, 46 (5) 611-620.
Most “wage curve” studies ignore the geography of local labor markets. However, when a local labor market is in close proximity of other labor markets, a local shock that increases unemployment may not lead to lower pay rates if employers fear outward migration of their workers. Hence, the unemployment elasticity of pay will be greater, the more isolated the local labor market is. Wages are also expected to be higher in regions that interact strongly with other regions. These hypotheses are confirmed by means of an estimation of wage curves with data for 327 regions of western Germany over the period 1990–1997.
Longhi S., Nijkamp P., Poot J. (2006) Spatial Heterogeneity and the Wage Curve Revisited, Journal of Regional Science, 46 (4) 707-731.