Agglomeration economies and the urban wage premium in Australia

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

This paper is the first to quantify the economic impact of urban density in Australia
on individual wages, referred to as the urban wage premium. By combining
Household Income and Labour Dynamics in Australia Survey microdata on 13,112
employed individuals and regional-level population data, population density effects
on individual hourly wages are studied over the period 2001 to 2019. A unique feature
of this paper is to apply a flow-based clustering algorithm that uses commuting flows
to define spatial aggregations. The urban wage premium is estimated conditional on
the specific aggregation. The Ordinary Least Squares estimate of the urban wage
premium peaks at 2.7 per cent. Controlling for individual fixed effects, the estimate
peaks at 1.6 per cent. This evidence suggests that wages increase by 1.6 per cent to
2.7 per cent if local density doubles.
Original languageEnglish
Pages (from-to)25-54
Number of pages30
JournalAustralian Journal of Labour Economics
Volume25
Issue number1
Publication statusPublished - 22 Mar 2022
Externally publishedYes

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