The Effect of Urban Agglomeration on Wages: Evidence from a Samples of Siblings
Most recent version: September, 2007.

Abstract: The large and significant relationship between city population and wages has been well established in the agglomeration literature, yet its causal interpretation remains debated. This paper contributes new evidence to this debate by using multiple data sets of siblings in order to estimate the agglomeration premium while controlling for unobserved individual heterogeneity with a family-specific fixed effect. In the absence of this fixed effect, the agglomeration premium is large and significant. But after a familial fixed effect is included in the regression framework, the city-size wage premium becomes small in magnitude and statistically insignificant in all of the data sets used in the analysis. The results demonstrate the importance of family background for interpreting the agglomeration premium.