Spatial sorting

Eeckhout, Jan; Pinheiro, Roberto; Schmidheiny, Kurt

doi:http://dx.doi.org/10.1086/676141

Spatial sorting

Citation

Eeckhout J, Pinheiro R, Schimdheiny K. Spatial sorting. Journal of political economy. 2014; 122(3):554-620

Abstract

We investigate the role of skill complementarities in production and mobility across cities. The nature of the complementarities determines the equilibrium skill distribution across cities. With extreme-skill complementarity, the skill distribution has thicker tails in large cities; with top-skill complementarity, there is first-order stochastic dominance. Using wage and housing price data, we find robust evidence of thick tails in large cities: large cities disproportionately attract both high- and lowskilled workers, while average skills are constant across city size. This pattern of spatial sorting is consistent with extreme-skill complementarity, where the productivity of high-skilled workers and of the providers of low-skilled services are mutually enhanced.