Centre for Vocational Education Research LSE RSS Email Facebook Twitter


CEP discussion paper
Cities, Matching and the Productivity Gains of Agglomeration
Fredrik Andersson, Simon Burgess and Julia Lane
September 2004
Paper No' CEPDP0648:
Full Paper (pdf)

JEL Classification: R23; R12; J24

Tags: urban productivity; matching; agglomeration

The striking geographical concentration of economic activities suggests that there are substantial benefits to agglomeration. However, the nature of those benefits remains unclear. In this paper we take advantage of a new dataset to quantify the role of one of the main contenders - the matching of workers and jobs. Using individual level data for two large US states we show that thicker urban labour markets are associated with more assortative matching between workers and firms. Another critical condition is required for this to generate higher productivity: complementarity of worker and firm quality in the production function. Using establishment level productivity regressions, we show that such complementarity is found in our data. Putting together the production and matching relationships, we show that production complementarity and assortative matching is an important source of the urban productivity premium.