Cities, skills and wages

This research examines the effect of skills in cities on regional wages. We use cluster analysis to identify three broad skill types-analytical, social intelligence and physical skills from 87 occupational skills. We examine how each skill contributes to regional wages and how they are related to regional size, using data from 1999 and 2008. We find that analytical and social intelligence skills have a significant positive effect on regional wages, while physical skills have a negative effect. Analytical skills are also somewhat more closely associated with regional wages than social intelligence skills, after controlling for education, industry, immigration and regional size. Furthermore, wage return to analytical and social intelligence skills has increased over time, and the return to physical skills has declined significantly. We also show that larger cities reward analytical and social intelligence skills to a higher degree, whereas smaller cities rely more on physical skills.