The Effect of Working from Home on the Agglomeration Economies of Cities: Evidence from Advertised Wages

Sitian Liu and Yichen Su

MPRA Paper from University Library of Munich, Germany

Abstract: We analyze the effect of working from home on the agglomeration economies of large cities and the aggregate productivity implications of such effect. Using advertised wages from job ads, we show that occupations with the highest work-from-home adoption during the COVID-19 pandemic saw a strong decrease in the urban wage premium. The decline in the urban wage premium is accompanied by an exodus of employment (based on firms' locations) from large cities to small cities. In contrast, occupations with low or moderate levels of work-from-home adoption saw little overall reduction in the urban wage premium. The empirical evidence in our paper points to weakened agglomeration economies in large cities among professions with the highest prevalence of working from home. A decomposition exercise reveals that a sizable portion of the decline in the urban wage premium is driven by the decline in the urban wage premium of relationship-building skills, suggesting the decreased agglomeration effect in large cities is at least partially a result of reduced occurrence of interactive activities.

Keywords: Agglomeration; Productivity; Spillover; Urban Wage Premium; Working from Home; Remote; Virtual; WFH; Wages; Job Posting; COVID-19; Pandemic (search for similar items in EconPapers)
JEL-codes: J24 J31 R12 R23 (search for similar items in EconPapers)
Date: 2022-05-13
New Economics Papers: this item is included in nep-geo, nep-lma and nep-ure
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: The Effect of Working from Home on the Agglomeration Economies of Cities: Evidence from Advertised Wages (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:113108

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