Journal
JOURNAL OF THE EUROPEAN ECONOMIC ASSOCIATION
Volume 20, Issue 4, Pages 1478-1521Publisher
OXFORD UNIV PRESS
DOI: 10.1093/jeea/jvac004
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Funding
- Deutsche Forschungsgemeinschaft (DFG) [DA 1576/1-2, FI 1939/1-2, SU 413/3-2]
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Using administrative German data, the study demonstrates that large cities facilitate a more efficient matching between high-quality workers and high-quality plants, leading to geographical inequality.
Using administrative German data, we show that large cities allow for a more efficient matching between workers and firms and this has important consequences for geographical inequality. Specifically, the match between high-quality workers and high-quality plants is significantly tighter in large cities relative to small cities. Wages in large cities are higher not only because of the higher worker quality but also because of a stronger assortative matching. Strong assortative matching in large cities magnifies wage differences caused by worker sorting, and is a key factor in explaining the growth of geographical wage disparities over the last three decades.
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