Wage Inequality and the Location of Cities

Farid Farrokhi, David Jinkins

Research output: Contribution to conferencePaperResearchpeer-review


In cross-sectional American census data, we document that isolated cities tend to have less wage inequality. To explain this correlation and other correlations between population and wages, we build an equilibrium empirical model that incorporates high and low-skill labor, costly trade, and both agglomeration and congestion forces. The model bridges the gap between the spatial inequality literature which abstracts from geography, and the economic geography literature which abstracts from inequality. We find that geographical location explains 9.2% of observed variation in wage inequality across American cities. In counterfactual experiments, we find that reductions in domestic trade costs benefit all American workers and decrease welfare inequality. We also examine the effects on inequality and welfare of both regional and national skill-biased technology shocks. We find that in larger cities wage inequality grows more than welfare inequality.
Original languageEnglish
Publication date2017
Number of pages47
Publication statusPublished - 2017
Event2017 Annual Meeting of the Society for Economic Dynamics - Edinburgh, United Kingdom
Duration: 22 Jun 201724 Jun 2017


Conference2017 Annual Meeting of the Society for Economic Dynamics
Country/TerritoryUnited Kingdom
Internet address

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