Long-story short:

Employers —and how workers reallocate across them— are crucial at explaining spatial wage disparities.

🔗 If you want to know more: www.hugolhuillier.com/files/papers...

Understanding the mechanisms behind spatial inequality matters!

For instance: what happens when job mobility slows down?

Big places lose their comparative advantage...
⬇️ Productivity, wages, and the number of workers in large cities shrink
⬆️ Smaller cities expand

🎯 Key quantitative takeaways

— Spatial wage disparities arise without city-level productivity gaps
— Lifetime earnings are higher in bigger cities — even for workers with lower real earnings as they climb a steeper ladder

How does this work?

Productive employers agglomerate in big places to maximize their size
✅ The local competition for workers intensify ➡️ high-paying jobs are concentrated there
✅ Low-paying jobs persist — because workers out of unemployment have little bargaining power

To explain this, I build a spatial model with two features:
1️⃣ Employers vary in productivity, and they choose where to produce
2️⃣ Labor markets are frictional, and workers climb local job ladders

Using French matched employer-employee data, I find:
📌 High-paying jobs are concentrated in big cities

📌 Low-paying jobs are everywhere

📌 Workers access high wages in large cities as they switch from low- to high-paying jobs over time