Department of Economics Working Paper Series Wage Premia in Employment Clusters: Does Worker Sorting

This paper tests whether the correlation between wages and the spatial con-centration of employment can be explained by unobserved worker productivity differences. Residential location is used as a proxy for a worker’s unobserved pro-ductivity, and average workplace commute time is used to test whether location based productivity differences are compensated away by longer commutes. Anal-yses using confidential data from the 2000 Decennial Census Long Form find that the agglomeration estimates are robust to comparisons within residential location and that the estimates do not persist after controlling for commutes suggesting that the productivity differences across locations are due to agglomeration, rather than productivity differences across individuals