"Agglomeration Economies and Assortative Matching in the Chilean Labor Market : An Empirical Study”

Abstract

This study analyzes the Chilean Unemployment Insurance data set,a longitudinal sample of over one million Chilean workers’ monthly job, records,finding a positive correlation between city size and wages. After controlling for worker and firmhet- erogeneity,the data suggest that doubling city size it’s associated with anaverage increase in wages of 1.6%. Using the1952 city populations as an instrument to solve endogeneity issues,this population-elasticity estimate remains robust.Given the sig- nificant variation in the data, salaries can be decomposed bye stimating worker and firm fixe deffects, allowing for a matching measure in the analysis of spatial wage disparities. Findings reveal that the co-location of high-productivity workers and firms in cities accounts for 42.9% of city-level wage variance. Further, larger cities promote a higher degree of assortative matching due to the broader range of available firms.