The Local Root of Wage Inequality
Wages vary significantly across cities, though not uniformly. While wages are on average higher in larger cities, the real earnings of low-wage workers are lower. Using French administrative data, I document two novel facts on how employers shape spatial wage inequality. First, high-paying jobs are concentrated in large cities, whereas low-paying jobs are present throughout space. Second, the wage gains offered by large cities materialize over time as workers move from low- to high-paying jobs. I propose a spatial framework that ties these facts together through two ingredients: heterogeneous employers and monopsonistic competition along local job ladders. Productive employers agglomerate in large cities to sidestep hiring frictions. Fiercer competition steepens the local ladder. Unemployed workers accept lower real earnings anticipating future wage growth. I estimate the model and show that the spatial concentration of productive firms quantitatively accounts for the two facts. I then use the model to assess the consequences of housing-adjusted unemployment benefits. While the policy increases spatial disparities, it alleviates the spatial misallocation caused by local labor market power, and therefore raises aggregate consumer surplus and TFP.
Date: 2 December 2025, 13:15
Venue: Manor Road Building, Manor Road OX1 3UQ
Venue Details: Seminar Room A
Speaker: Hugo Lhuillier (University of Chicago)
Organising department: Department of Economics
Part of: Macroeconomics Seminar
Booking required?: Not required
Audience: Members of the University only
Editor: Edward Valenzano