KTH/CESIS Working Paper Series in Economics and Institutions of Innovation
Wages, Productivity and Industry Composition – agglomeration economies in Swedish regions
() and Hanna Larsson
Abstract: It is a well known fact that wages have a tendency to be
higher in larger regions. The source of the regional difference in wages
between larger and smaller areas can be broadly divided into two parts. The
first part can be attributed to the fact that regions have different
industrial compositions. The second part is due to the fact that average
regional productivity differs between regions. Using a decomposition
method, akin to shift-share, we are able to separate regional wage
disparities into an industrial composition component and productivity
component. According to theory it is expected that productivity is higher
in larger regions due to different kinds of economies of agglomeration.
Also, larger regions are able to host a wider array of sectors compared to
smaller regions. Output from sectors demanding a large local or regional
market can only locate in larger regions. Examples of such sectors are e.g.
various types of advanced services with high average wages. The purpose of
the paper is to explain regional differences in wages and the productivity
and composition components, respectively. The paper tests the dependence of
wages, productivity and industrial composition effects on regional size
(using a market potential measure). In the estimation we control for
regional differences in education, employment shares, average firm size and
self-employment. Swedish regional data from 2004 are used. The results
verify that larger regions on average have higher wages, originating from
higher productivity and more favorable industry composition.
Keywords: Agglomeration Economies; Regions; Wages; Productivity; Industrial Composition; Sweden; (follow links to similar papers)
JEL-Codes: C21; J31; O18; R10; R12; (follow links to similar papers)
29 pages, November 23, 2009
Before downloading any of the electronic versions below
you should read our statement on
for viewing Postscript files and the
Acrobat Reader for viewing and printing pdf files.
Full text versions of the paper:
Questions (including download problems) about the papers in this series should be directed to Vardan Hovsepyan ()
Report other problems with accessing this service to Sune Karlsson ()
or Helena Lundin ().
Design by Joachim Ekebom