A test of agglomeration using wage behavior.

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Date
2006-10-13Author
Staha, Melissa B.
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The neoclassical economic model of wage behavior over time and place predicts
that firms spread out and wages converge, given assumptions such as no transactions
costs, homogenous products, and same access to resources and technology. However,
there are rents called agglomeration economies that can be extracted in certain
occupations and occupational groups simply by being located near other similar firms. In this case, the firms agglomerate and wages diverge. We use data from the Bureau of Labor Statistics to test if agglomeration is happening in certain occupational groups based on whether wages are converging or diverging over the short term. Although agglomeration happens more often in the higher-ordered occupational groups, overall, the evidence is mixed concerning the presence of agglomeration economies.