Scandinavian Working Papers in Economics

Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

No 409: Increasing Wage Gap, Spatial Structure and Market Access: Evidence from Swedish Micro Data

Pardis Nabavi ()
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Pardis Nabavi: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, Postal: SE-100 44 Stockholm, Sweden

Abstract: The new economic geography predicts that the wage gap will increase with accessibility to markets but does not consider the impact of spatial proximity. In contrast, urban economic theory explains wage differences by density without accounting for accessibility. Using a rich Swedish micro-panel, we empirically examine the two rival theories for males and females separately, controlling for individual, firm and regional characteristics. The regression results indicate that wage dispersion is correlated with both accessibility to markets and density. However, the urban economic theory has greatest explanatory power when we control for factors such as occupation, ethnical background, skill, firm size, technical change, ownership, commuting time, unobserved heterogeneity and spatial autocorrelation.

Keywords: New economic geography; urban economics; spatial econometrics; micro panel data

JEL-codes: C21; J30; R12; R23

34 pages, June 1, 2015

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