Dissertation: Agglomeration and Sorting – Determinants of Regional Productivity Differentials

Agglomeration and Sorting – Determinants of Regional Productivity Differentials

A Theoretical and Empirical Investigation

Schriftenreihe volkswirtschaftliche Forschungsergebnisse, Band 201

Hamburg 2014, 206 Seiten
ISBN 978-3-8300-7999-6 (Print & eBook)

Agglomeration Economics, Human Capital, Job Search Model, Occupation based Analysis, Regional Economics, Regionalökonomie, Regional Productivity Differentials, Sorting, Volkswirtschaft

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Productivity differentials of workers between urban and rural regions are usually explained by increasing returns to scale due to agglomeration. These increasing returns to scale are called agglomerations economies. We contribute to the literature as we analyse regional differences in agglomeration and individual location decisions of workers jointly.

In the theoretical analysis we develop a model of workers sorting that explains both: vertical and horizontal sorting. With vertical sorting we mean a sorting mechanism along the skill levels of workers. We find that workers with a higher level of skills tend to locate in densely populated and urban regions more likely than low skilled workers. We show that this sorting arises since workers with higher levels of skills can profit more from density than less skilled employees. In consequence they search for a job in a city more intensely. In the second part we analyse sorting according to horizontal differences in the skills. With this we denote that workers have skills of equal level but in different fields. We show that differences in the fields of skills lead to regional specialisation when regions exhibit different types of agglomeration economies such as different arrangements in their infrastructure or in their universities and research network.

The theoretical findings are tested empirically. We use a panel dataset for 412 German Nuts3-regions for the years from 1996 to 2008. Beside detailed formal educational data our dataset comprises information about 33 different fields of profession. The information about the professions serves as detailed proxies for the skills possessed by the workers. In the first empirical chapter we analyse the vertical sorting model. Checking for endogeneity, year- and region specific effects we can confirm the conclusions from our theoretical analysis: Employees profit heterogeneously form density. Agglomeration may thus be a driving force of workers sorting.

In the second empirical chapter we investigate horizontal sorting. We first identify regional specialisations in the occupational structure and group regions with similar structures together. Second, we analyse the impacts of agglomeration in the different clusters on labour productivity. The empirical results commit the theoretical implications: We find evidence for horizontal sorting such that workers with skills in different fields locate in different regions. We further find that workers in these specialised regions profit differently from agglomeration. Lastly, we examine inter-regional integration and its dependence on the occupational profiles of the regions.

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