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Title: Spatial Sorting: Why New York, Los Angeles and Detroit Attract the Greatest Minds as well as the Unskilled

Citation Type: Miscellaneous

Publication Year: 2010

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Abstract: We propose a theory of skill mobility across cities. It predicts the well documented city sizewage premium: the wage distribution in larger and more productive cities first-order stochastically dominates that in less productive cities. Yet, because this premium reflects higher house prices, this does not necessarily imply that this stochastic dominance relation also exists in the distribution of skills. Our model predicts quite to the contrary: instead of first-order, there is second-order stochastic dominance in the skill distribution. The demand for skills is non-monotonic as our model predicts a Sinatra as well as an Eminem effect: both the very high and the very low skilled disproportionately sort into the biggest cities, while those with medium skill levels sort into small cities. Based on our theory, the pattern of spatial sorting is explained by a simple technology with varying elasticity of substitution by skill. Using CPS data on wages and Census data on house prices, this technology with the elasticity of substitution decreasing in skill density is consistent with the observed patterns of skills.

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Authors: Schmidheiny, Kurt; Pinheiro, Roberto; Eeckhout, Jan

Publisher: University of Colorado

Data Collections: IPUMS USA

Topics: Labor Force and Occupational Structure

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