Your browser does not support the PubReader view.
Go to this page to see a list of supporting browsers.
Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 23, No. 4, pp.421-437
ISSN: 1225-0279 (Print)
Print publication date 30 Nov 2010
Received 02 Mar 2010 Revised 02 Sep 2010 Accepted 08 Sep 2010

A Test of the Worker Quality Explanation for the Urban/Non-Urban Wage Gap

John Gibson ; Bonggeun Kim
Professor, Department of Economics, University of Waikato, Private Bag 3105, Hamilton, New Zealand, Tel: +64-7-838-4289, Fax: +64-7-838-4331 jkgibson@waikato.ac.nz
Corresponding Author, Associate Professor, Department of Economics, Seoul National University, 599 Gwanak-ro, Gwanak-gu, Seoul 151-746, Korea, Tel: +82-2-880-6746, Fax: +82-2-886-4231 bgkim07@snu.ac.kr

JEL Classification: J31

Abstract

We conduct a test to determine whether the observed urban/non-urban wage gap is a return to unobservable ability. A new measure of worker quality is added to wage regressions, and the estimated urban premium is compared with the results from the standard human capital measures. This new measure of unobserved ability refers to workers’ literacy as assessed by the International Adult Literacy Survey (IALS). Using data from three countries with different population densities and scope of human capital spillovers, we find that controlling for literacy levels does not reduce the size of the urban wage premium, implying that the wage gap is not due to previously unobserved worker quality. We also test whether literacy affects interaction between the urban wage premium and experience, which may proxy for learning-by-doing, and find similarly insignificant changes in the estimates.

Keywords:

Urban/Non-urban wage gap, Worker quality hypothesis

Acknowledgments

We are grateful to the financial support from the Advanced Strategy Program (ASP) of the Institute of Economic Research, Seoul National University.

References

  • Bronars, Stephan, and Oettinger, Gerald. “Estimates of the Return to Schooling and Ability: Evidence from Sibling Data.” Labour Economics 13 (No. 1 2006): 19-34. [https://doi.org/10.1016/j.labeco.2004.07.003]
  • Devroye, Dan, and Freeman, Richard. Does Inequality in Skills Explain Inequality in Earnings Across Advanced Countries? Institute for Fiscal Studies Working Paper No. 04/08, 2001. [https://doi.org/10.3386/w8140]
  • Freeman, Richard, and Schettkat, Ronald. “Skill Compression, Wage Differentials, and Employment: Germany vs the US.” Oxford Economic Papers 53 (No. 3 2001): 582-603. [https://doi.org/10.1093/oep/53.3.582]
  • Gibson, John K., and Stillman, Steven. “Why Do Big Firms Pay Higher Wages? Evidence From an International Database.” Review of Economics and Statistics 91 (No. 1 2009): 213-8. [https://doi.org/10.1162/rest.91.1.213]
  • Glaeser, Edward L., and Gottlieb, Joshua D. “The Economics of Place-Making Policies.” Brookings Papers on Economic Activity (No. 1 2008): 155-253. [https://doi.org/10.1353/eca.0.0005]
  • Glaeser, Edward L., and Maré, David C. “Cities and Skills.” Journal of Labor Economics 19 (No. 2 2001): 316-42. [https://doi.org/10.1086/319563]
  • Green, David, and Riddell, W. Craig. “Literacy and Earnings: An Investigation of the Interaction of Cognitive and Unobserved Skills in Earnings Generation.” Labor Economics 10 (No. 2 2003): 165-84. [https://doi.org/10.1016/S0927-5371(03)00008-3]
  • Harris, John R., and Todaro, Michael P. “Migration, Unemployment and Development: A Two-Sector Analysis.” American Economic Review 60 (No.1 1970): 126-42.
  • Johnson, D. Gale. “Comparability of Labor Capacities of Farm and Nonfarm Labor.” American Economic Review 43 (No. 3 1953): 296-313.
  • Kim, Bonggeun. The Wage Gap between Metropolitan and Nonmetropolitan Areas. mimeo, University of Michigan, June, 2002.
  • Kim, Yong Jin. “A Hierarchy of Human Capital and Economic Growth.” Seoul Journal of Economics 5 (No. 4 1992): 317-35.
  • Krugman, Paul. “Increasing Returns and Economic Geography.” Journal of Political Economy 99 (No. 3 1991): 483-99. [https://doi.org/10.1086/261763]
  • Lee, Chul-In. “Can Search-Matching Models Explain Migration and Wage and Unemployment Gaps in Developing Economies? A Calibration Approach.” Journal of Regional Science 50 (No. 2 2010): 635-54. [https://doi.org/10.1111/j.1467-9787.2010.00667.x]
  • Lucas, Jr., Robert E. “On the Mechanics of Economic Development.” Journal of Monetary Economics 22 (No. 1 1988): 3-42. [https://doi.org/10.1016/0304-3932(88)90168-7]
  • McIntosh, Steven, and Vignoles, Anna. “Measuring and Assessing the Impact of Basic Skills on Labor Market Outcomes.” Oxford Economic Papers 53 (No. 3 2001): 453-81. [https://doi.org/10.1093/oep/53.3.453]
  • Page, Marianne E., and Solon, Gary. “Correlations between Brothers and Neighboring Boys in Their Adult Earnings: The Importance of Being Urban.” Journal of Labor Economics 21 (No. 4 2003): 831-55. [https://doi.org/10.1086/377021]
  • Rauch, James. “Productivity Gains from Geographic Concentration of Human Capital: Evidence from the Cities.” Journal of Urban Economics 34 (No. 3 1993): 3-33. [https://doi.org/10.1006/juec.1993.1042]