Seminar: Is employment decentralization bad for productivity? Estimating the spatial scope of agglomeration economies

Time: 13.00-14.00 hours
Location: CPB-office, Bezuidenhoutseweg 30, The Hague, room 1 - V1001

Presentation: Paul Verstraten (CPB)

Discussant: Hans Koster (VU)

Language: English

Registration: Please register here

Abstract subject:
Employment decentralization potentially limits agglomeration economies, because the gains from urbanization may not be fully exploited when firms and people spread across space. In order to assess whether this is true, a better understanding of the spatial scope of agglomeration economies is necessary. This paper provides insight into this issue, by analyzing nationwide wage data at the geographic level of ZIP codes. The key finding of this paper is that wages and urbanization are not causally related on short distances (<5km) and strongly positively related on medium distances (5-10km). This positive effect attenuates across geographic space and becomes insignificant after 40-80km. This pattern can be understood as the net effect of agglomeration economies and congestion costs. Given this wide spatial scope of agglomeration economies, we conclude that employment decentralization is not necessarily harmful for productivity. In fact, job growth in the outskirts of cities can be economically efficient, because it avoids congestion in the city center. Finally, this paper reveals that foreign economic mass does not affect wages in the Netherlands. This suggests that national borders are still a substantial barrier for economic interaction.

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