Mysteries of the trade? Skill-specific local agglomeration economies

Abstract

Do workers benefit from proximity to other workers with similar skill sets? This question dates back at least to Alfred Marshall. We use occupation groups to proxy skill sets and show that the answer likely depends on geographical levels, as well on regional hierarchy. Using longitudinal Swedish data, we document robust evidence consistent with highly localized spillovers at the level of sub-city districts between individuals in similar occupations. We further demonstrate less distance-sensitive benefits of working in districts and regions, characterized by high overall density (of employees in other occupations). We find no evidence of benefits from overall density outside Sweden’s three main metropolitan areas.