Abstract: This paper studies the effect of spatial sorting on inequality through two channels: spatial differences in technology and the endogenous organization of production. First, I document a new fact on the spatial differences in the organization of production. The number of workers per manager is decreasing in city size, overall and within industries. I develop and quantify a model of a system of cities where workers of different skills organize in production teams. The model yields continuous wage distributions in cities of different sizes that resemble the data. I find that technology differs across cities in its productivity but also in its complexity, so there are no incentives for it to diffuse across cities. I then use the model to evaluate two local policies that are designed to address income inequality: a minimum wage and a housing subsidy. I find that a revenue neutral housing subsidy is more effective than a minimum wage at reducing inequality, measured by the variance of log wages.
Establishment and City Size Premia: Evidence from Spanish Administrative Data (with Hannah Rubinton and Charly Porcher)
Abstract: This paper studies the role of establishment size in explaining the city size wage premium. Using administrative data for Spain we document a positive correlation between city size and establishment size. The establishment size for a typical worker is 30% larger in a city with twice the population density, even after controlling for worker fixed effects and other observables. Controlling for establishment size decreases the static within-worker city-size wage premium from 2.6 to 1.8 percent. It also decreases the medium-term premium of living in a large city from 4.4 percent to 3.5 percent. Furthermore, we find that controlling for experience accumulated in larger establishments slightly decreases the city size wage premium to 3.3 percent.