Wage distribution and the spatial sorting of workers

This article investigates the role that sorting plays in the relation between spatial externalities and wage distribution. Using Italian employer–employee panel data and quantile fixed-effects estimates, we point out that sorting matters and that its impact is not uniformly distributed along the wage distribution. Nonetheless, after controlling for the spatial sorting and endogeneity, we find an increasing impact of spatial externalities along the wage distribution. We also characterize the spatial sorting of workers across sectors and along the skills distribution. We point out that the spatial sorting is not homogeneous across sectors and that there is evidence supporting interpretation in terms of a dilating effect.