New economic geography and US metropolitan wage inequality

Abstract

This article investigates the distributional aspect of market access. Following the New Economic Geography literature, we derive a spatial skill demand equation that positively links skill premiums to market access. Using data from US metropolitan areas, we show that not only are average wages greater in metropolitan areas with higher market access, but wage differentials are also more unequally distributed. Specifically, greater market access is linked to relatively weaker (stronger) outcomes for those at the bottom (top) of the wage distribution. Further assessment finds that market potential is favorably associated with greater shares of high-skilled workers. The analysis provides further rationale for the much-observed positive relationship between the metropolitan area’s share of high-skilled workers and its skilled-worker wage premium (all else constant).

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