Skills in the city

This paper documents the allocation of skills across cities and estimates the impact of agglomeration on the hedonic prices of worker skills. We find that large cities are more skilled than are small cities, but only to a modest degree. We also show that the increase in productivity associated with agglomeration, as measured by the urban wage premium, is larger for workers with stronger cognitive and people skills. In contrast, motor skills and physical strength are not rewarded to a greater degree in large cities. Urbanization thus enhances thinking and social interaction, rather than physical abilities. These results are robust to a variety of estimation strategies, including using NLSY variables that control for worker quality and a worker-MSA fixed effect specification. (c) 2008 Elsevier Inc. All rights reserved.