Commuting, local labour markets and the economic effects of density

What is it about?

When analysing regional differences, a researcher needs to divide an area into spatial units. For the Netherlands, for example, a researcher could use the Dutch municipalities or NUTS3 areas. This research answers several innovative questions related to this. How should we measure the geographical size of labour markets and how does it relate to the wage premium in urban areas (i.e., the modifiable areal unit problem (MAUP))? Are the sizes of local labour markets different for women and men, stratified by educational attainment? Does this matter for the gender pay gap?

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Photo by Denise Jans on Unsplash

Photo by Denise Jans on Unsplash

Why is it important?

Key highlights: 1) Low-educated workers and female workers are characterized by a relatively small local labour market. 2) The positive effect of employment density on workers’ wages – the urban wage premium – increases when using larger spatial unit sizes to define workers’ local labour markets. 3) Our results suggest that for a predefined regional classification, the UWP will be overestimated for low-educated workers, whereas it will be underestimated for high-educated workers. This research is relevant for policies in several ways: a) This findings highlight that it is important to analyse whether place-based policies targeted at workers who have a relatively small LLM, compared with policies directed at other subgroups of workers, may be more effective if they are specific, local and decentralized. b) The results imply that urban and regional policies to increase agglomeration benefits and regional productivity growth could very well be generic and centralized, such as city-region cooperation and geographical upscaling of economic activities. In contrast, local policies such as science parks may be overstating the importance of very localized interactions.

Perspectives