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The Effect of Working from Home on the Agglomeration Economies of Cities: Evidence from Advertised Wages

Sitian Liu¹; Yichen Su²

¹ Queen's University [email protected] · ² Southern Methodist University [email protected]

Abstract Using job posting wage data, we find a substantial decrease in the urban wage premium for occupations with high working-from-home (WFH) adoption following the COVID-19 pandemic, accompanied by an employment shift away from large cities. Based on a conceptual framework, the empirical findings suggest that WFH adoption lowered the productivity premium of large cities. A skill-level decomposition reveals that the urban wage premium decline was largely driven by reduced wage returns to interpersonal skills in large cities, suggesting that the reduced urban productivity premium was a result of weakened agglomeration economies due to decreased interpersonal interactions in large cities.

DOI

10.1162/rest.a.1681

Pages

1-45

Language

en

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