Duncan Roth (Institute for Employment Research)
Annekatrin Niebuhr and Jan Cornelius Peters
Using administrative data on individual employment biographies of workers in Germany covering almost the past 50 years, this study investigates changes in dynamic agglomeration effects over time and provides novel evidence on the underlying mechanisms. Our results point to significant vari ation in the returns to urban work experience for different cohorts of young workers who entered the labour market between 1976 and 2010. In particular, we observe an increase in the premium for work experience gained in the densest locations for the entry cohorts between 1985 and 1995. Subsequently, the dynamic agglomeration effects declined again to the level which prevailed until the middle of the 1980s. We present two main findings. First, we show that for each entry cohort, the majority of the dynamic agglomeration effects can be ascribed to a favourable composition of jobs in the densest locations: urban work experience carries a higher return because the tasks, sectors and establishments that are available in cities allow for the acquisition of especially valuable work expe rience. Second, we argue that changes in dynamic agglomeration effects over time can result from changes in the composition of jobs in the densest locations as well as from changes in the returns to experience gained in specific task groups, sectors and establishment types. We provide evidence that changes in the returns to urban work experience primarily reflect changes in the returns to specific types of experience rather than changes in the composition of jobs over time. We conclude that the return to urban work experience is affected by structural change through the formers effect on how work experience in different task groups, sectors and establishment types is rewarded.