Estimating the urban wage premium in Portugal using longitudinal microdata

This study estimates the urban wage premium in Portugal using worker longitudinal microdata from Quadros de Pessoal. It quantifies the impact of urban agglomeration economies and human capital on workers hourly wages, measured at the municipality level, after controlling for worker characteristics relating to education, qualification skills, experience, occupation, and industry. The findings revealed the existence of an urban wage premium resulting from urban agglomeration economies of 0.03% to 0.04% (hourly wage–employment density elasticity). That is, on average, a duplication in employment density is associated with an increase in hourly wages between 3% and 4%, ceteris paribus. Additionally, the evidence suggests that the effect is not homogeneous across municipalities and varies to some extent according to municipality size: more concretely, the effect appears to be larger for medium-to-large size municipalities, but not for the larger tier municipalities (200,000 plus people), which is indicative of possible agglomeration diseconomies beyond this size threshold, in the Portuguese context.