The Urban Wage Premium in Imperfect Labour Markets

37 Pages Posted: 18 Jan 2016

See all articles by Boris Hirsch

Boris Hirsch

University of Erlangen-Nuremberg

Elke J. Jahn

Institute for Employment Research (IAB); University of Bayreuth; IZA Institute of Labor Economics

Michael Oberfichtner

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg

Abstract

Using administrative data for West Germany, this paper investigates whether part of the urban wage premium stems from fierce competition in thick labour markets. We first establish that employers possess less wage-setting power in denser markets. Local differences in wage-setting power predict 1.1-1.6% higher wages from a 100 log points increase in population density. We further document that the observed urban wage premium from such an increase drops by 1.1-1.4pp once conditioning on local search frictions. Our results therefore suggest that a substantial part of the urban wage premium roots in differential imperfections across local labour markets.

Keywords: urban wage premium, imperfect labour markets, monopsony, search frictions

JEL Classification: R23, J42, J31

Suggested Citation

Hirsch, Boris and Jahn, Elke J. and Oberfichtner, Michael, The Urban Wage Premium in Imperfect Labour Markets. IZA Discussion Paper No. 9635, Available at SSRN: https://ssrn.com/abstract=2716576

Boris Hirsch (Contact Author)

University of Erlangen-Nuremberg ( email )

Schloßplatz 4
Erlangen, DE Bavaria 91054
Germany

HOME PAGE: http://www.arbeitsmarkt.wiso.uni-erlangen.de/english/hirsch_e.htm

Elke J. Jahn

Institute for Employment Research (IAB) ( email )

Regensburger Str. 104
Nuremberg, 90478
Germany

University of Bayreuth ( email )

Bayreuth, 95447
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Michael Oberfichtner

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg ( email )

Schloßplatz 4
Erlangen, DE 91054
Germany

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