Worker Sorting and Agglomeration Economies

Résumé

This paper contributes to our understanding of agglomeration economies in three ways: First it documents a number of facts relating to occupational switching patterns, moving patterns, and wages in large cities. Second, guided by these facts, it develops a model where larger cities have more occupations and as a result workers form better matches. Third, it calibrates the model to match moments relating to differences in moving probabilities and occupational switching probabilities and finds that better occupational match quality accounts for approximately 40% of the observed wage premium and a third of the greater inequality in larger cities.