Urban Governance Structure and Wage Disparities across US Metropolitan Areas

This paper analyses the determinants of spatial wage disparities in the US context for the period 1980-2000. Agglomeration benefits are estimated based on city productivity premia which are computed after controlling for the skills distribution among metropolitan areas as well as industry fixed effects. The drivers of productivity differentials that are taken into consideration are the size of the local economy, the spatial interactions among local autonomous economic systems and the structure of urban governance as well as the policy responses to the fragmentation issue. A metropolitan area with ten percentage more administrative units than another of the same size, experiences wages that are between 2.0% and 3.0% lower. The presence of a voluntary governance body is found to mitigate the problem of fragmentation only marginally, while the existence of special purpose districts have a negative impact on regional productivity. The implementation of a metropolitan government with a regional tax system is expected to increase productivity by around 6%.