Spatial externalities in big cities and duality of the labour market

This article investigates the dynamics of the spatial wage premium for workers employed on temporary and permanent contracts. We use an employer–employee database that covers the universe of young Italian employees for 2005–2016. On controlling for individual observed and unobserved heterogeneity and endogeneity of the relationship, our findings indicate that workers hired on a temporary basis do not enjoy the same benefits from agglomeration externalities as workers on permanent contracts. Nonetheless, the likelihood of a temporary worker switching to a permanent contract, as well as its wage premium, increases with city size, thus partially offsetting the spatial dynamics disadvantage.