Do the Best Cities Have the Best Workers? Theoretical Models and Empirical Evidence

Abstract

This article reviews theoretical approaches, methodology, and empirical research investigating concentration of the most productive workers in large cities. I identify several debatable findings requiring further investigation, such as whether the concentration of skilled workers in the most productive cities in a country benefits the national economy and whether wage growth in large cities is actually driven by the demand for human capital. I also discuss which economic mechanisms contribute to the concentration of the best workers in the best cities, and methods for identifying such ‘best cities’ using modern economic analysis. Similar research in Russia is scarce. Previous empirical studies have shown that ‘the best cities’ for highly skilled workers are large cities, because they are centers of state and corporate governance, innovation, economics, and other activities. Skilled workers are attracted by the amenities of large cities and the terms of employment, including higher wages. I hypothesize that that employment in large and the largest cities and/or cities with a special administrative status (the capital, regional capitals, etc.) has a positive and significant impact on wages. My analysis, carried out on the cross-section of Russian cities in 2017, provides supportive evidence for this hypothesis.